Top 6 Strategies to Reduce Operating Costs For Your Ecommerce Business

Top 6 Strategies to Reduce Operating Costs For Your Ecommerce Business

Jennie Wilson
Jennie Wilson
April 5, 2024
Last updated on:

April 5, 2024


Read time: 4 mins

Operational costs significantly impact the bottom line of any ecommerce business. By reducing these expenses, you enhance profitability and sustainability. By optimizing expenses, you can enhance your bottom line and allocate resources more efficiently.

Moreover, reducing overheads enables you to offer competitive pricing to attract more customers, fostering customer loyalty and increasing sales volume. Additionally, it provides a financial buffer against economic downturns or unexpected expenses.

Whether you're a startup or an established online business, reducing operating costs is always a key priority. In this blog, we'll explore various strategies to help you effectively minimize operational costs in your ecommerce venture.

As per a study conducted by McKinsey & Company, e-commerce businesses witnessed an average rise of 6% in operating costs in 2021 due to inflationary pressures.

How to Reduce Operating Expenses in Ecommerce Businesses? 6 Key Tips

1. Invest in Automation

In traditional ecommerce setups, numerous manual tasks consume valuable time and resources. From order processing to inventory management, the reliance on manual labor can significantly inflate operating expenses. Human error, inefficiencies, and the need for constant supervision further exacerbate the situation, hindering scalability and profitability.

Investing in automation can significantly reduce operating expenses for ecommerce businesses. By implementing automated processes in various aspects of operations, like order processing, inventory management, and customer service, businesses can streamline their workflows and improve efficiency. Moreover, automation can help prevent errors and reduce instances of human oversight, which can result in costly mistakes. Additionally, automated data analysis tools can provide valuable insights into consumer behavior and market trends.

Tips to Implement Automation in eCommerce:

  • Implement AI-Powered Chatbots: Streamline customer support, reducing human intervention and operational costs.
  • Automate Inventory Management: Utilize software to optimize stock levels, preventing overstocking and reducing storage expenses.
  • Automate Marketing Processes: Use tools for targeted marketing campaigns, saving time and resources while maximizing ROI.
  • Automate Order Fulfillment: Employ software for efficient order processing and shipment, minimizing errors and labor costs.

What are the major challenges for eCommerce?

Major challenges for ecommerce include fierce competition, ensuring cybersecurity to protect customer data, managing logistics effectively for timely deliveries, maintaining customer trust amidst fraud concerns, adapting to changing consumer preferences and navigating complex regulatory landscapes. Additionally, creating seamless user experiences and combating cart abandonment are continual hurdles.

Read our blog, ‘How to Overcome Challenges of Running an Ecommerce Store’, to learn effective ways to deal with the challenges in your ecommerce business.

2. Reduce Shipping Costs

Shipping costs can be a major burden for ecommerce businesses, especially those dealing with bulky or heavy items. High shipping expenses eat into profit margins, making staying competitive in the market challenging. Additionally, fluctuating fuel prices and carrier fees further complicate the situation, leaving businesses struggling to reduce these costs without compromising service quality.

By lowering shipping expenses, businesses can offer more attractive pricing to customers, potentially increasing sales volume. Additionally, efficient shipping practices enhance customer satisfaction by providing faster delivery times and minimizing the likelihood of abandoned carts due to exorbitant shipping fees. Moreover, streamlined shipping processes reduce the burden on logistics, improving overall operational efficiency.

Tips to Reduce Shipping Costs in eCommerce:

  • Optimize Packaging: Use smaller, lighter packaging materials to reduce shipping weight and dimensional weight charges.
  • Negotiate Carrier Rates: Negotiate with shipping carriers for better rates based on shipping volume and frequency.
  • Offer Shipping Incentives: Encourage customers to buy more by offering free shipping above a certain order amount.
  • Use Regional Warehouses: Strategically place warehouses closer to customers to decrease shipping distances and costs.
Ways to Streamline Shipping Costs in Ecommerce
Image 1 - Ways To Streamline Shipping Costs In Ecommerce

3. Optimize Inventory Management

Inefficient inventory management can significantly drain resources for e-commerce businesses. Excessive stock levels tie up capital, while insufficient stock leads to missed sales opportunities and dissatisfied customers. Manual tracking systems are highly prone to errors and can result in overstocking or stockouts. Additionally, storage costs for excess inventory can eat into profits, especially for businesses operating in high-rent areas or utilizing third-party logistics providers.

By optimizing inventory, businesses can minimize storage expenses associated with excess stock, reduce the risk of obsolete or expired products, and decrease the need for expedited shipping to fulfill orders promptly. Moreover, streamlined inventory processes enable businesses to negotiate better terms with suppliers, capitalize on bulk purchasing discounts, and minimize the cost of stockouts. With accurate forecasting and demand planning, businesses can align inventory levels with customer demand, thus avoiding overstocking or understocking situations.

Tips to Optimize Inventory Management in eCommerce:

  • Implement Just-In-Time Inventory: Just-In-Time Inventory: Reduce excess inventory by ordering goods only when needed, minimizing storage costs.
  • Utilize Inventory Tracking Systems:Monitor stock levels in real-time to prevent overstocking or stockouts, optimizing inventory turnover.
  • Forecast Demand Accurately: Use data analytics to predict customer demand, ensuring optimal stock levels without excess inventory.
  • Utilize Dropshipping: Partner with suppliers who directly ship products to customers to eliminate the need for inventory storage.
How Effective Inventory Management Reduce Operational Costs
Image 2 - How Effective Inventory Management Reduce Operational Costs

4. Outsource Non-core Functions

Many ecommerce businesses handle all aspects of their operations in-house, from customer service to inventory management. While this may seem cost-effective initially, it can lead to significant overhead expenses in the long run. Managing non-core functions internally often requires hiring specialized staff, investing in infrastructure, and dedicating valuable time and resources. This can strain the budget and hinder the business's ability to focus on core competencies and growth opportunities.

By outsourcing non-core functions, ecommerce businesses can streamline operations and reduce operating expenses significantly. Outsourcing tasks such as customer service, order fulfillment, and IT support to specialized service providers can lower overhead costs, eliminate the need for extensive infrastructure investment, and free up internal resources. Additionally, outsourcing allows businesses to gain from the expertise and scalability of third-party providers.

Tips to Outsource Non-Core Functions in eCommerce:

  • Customer Service: Contract external firms for customer support, reducing overhead costs associated with in-house teams.
  • Accounting and Finance: Delegate financial tasks to specialized firms, saving on hiring and training expenses.
  • IT Infrastructure Management: Delegate IT support and maintenance, lowering costs associated with internal infrastructure management.
  • Content Creation and Marketing: Partner with agencies or freelancers for content creation and marketing, reducing overhead costs.

5. Negotiate Better Terms with Suppliers

Often, ecommerce businesses overlook the potential savings that can be achieved through strategic negotiations. By accepting the terms presented by suppliers without question, businesses may miss out on opportunities to lower costs and improve profit margins. Without proactive negotiation, businesses may find themselves locked into unfavorable contracts or paying higher prices for goods and services than necessary.

Negotiating better terms with suppliers can significantly impact an ecommerce business's bottom line. Instead of passively accepting standard terms, proactive negotiation can lead to substantial cost savings. For instance, negotiating lower unit prices or longer payment terms can directly reduce the cost of goods sold, improving margins. Additionally, securing discounts for bulk orders can provide even more significant savings.

Tips to Negotiate Better Terms With Suppliers in eCommerce:

  • Volume Discounts: Bargain for discounts based on the quantity of products purchased, lowering per-unit costs.
  • Extended Payment Terms:Request longer payment deadlines to improve cash flow and reduce immediate financial strain.
  • Price Matching: Negotiate with suppliers to match or beat competitors' prices, ensuring competitive pricing for your business.
  • Consolidate Suppliers: Combine orders with fewer suppliers to qualify for bulk discounts and streamline operations.

6. Minimize Returns

Returns in ecommerce can significantly impact operating expenses, eating into profits and logistical resources. Customers returning products due to dissatisfaction, wrong sizing, or receiving damaged goods can disrupt the smooth flow of business operations. Handling returns requires manpower, storage space, and sometimes restocking fees, all of which contribute to increased expenses.

By implementing strategies to decrease returns, such as providing detailed product descriptions, accurate sizing guides, and high-quality images, businesses can mitigate the likelihood of customers receiving unsuitable items. Additionally, improving the overall quality of products and enhancing customer service can lead to greater customer satisfaction and fewer returns.

Tips to Minimize Returns in eCommerce:

  • Improved Product Descriptions: Provide detailed and accurate product information to manage customer expectations and reduce return rates.
  • Quality Control Measures: Implement stringent quality checks to ensure products meet standards, minimizing defective items and returns.
  • Offer Virtual Try-Ons: Utilize technology to enable customers to virtually try products, reducing return rates for items like clothing and accessories.
  • Optimize Sizing Guides: Provide comprehensive sizing charts to help customers choose the right fit, reducing returns due to sizing issues.

What is the relation between bad customer service and returns in ecommerce?

Poor customer service in ecommerce often leads to increased returns. Customers who encounter difficulties with orders, inquiries, or complaints may feel compelled to return items due to dissatisfaction or lack of resolution. Inadequate support can erode trust, resulting in more returns as consumers seek alternative solutions. By contrast, responsive and helpful customer service can mitigate return rates by addressing issues effectively, fostering loyalty, and enhancing overall satisfaction.

To learn why customer service is important in reducing returns, read our article, ‘Mastering the Art of Balancing Sales and Customer Service during Festive Seasons.’


In the current digital landscape, reducing operational costs is a priority for ecommerce businesses. To achieve this, they leverage advanced technologies like artificial intelligence (AI), machine learning, and automation. To further cut costs, many ecommerce businesses are delegating certain tasks to third-party providers specialized in areas such as logistics, customer support, and digital marketing. Outsourcing these functions allows companies to benefit from expertise and infrastructure without bearing the full burden of staffing and maintaining these operations in-house.

With 24 years of experience in delivering ecommerce support services, Invensis specializes in providing comprehensive solutions to businesses worldwide. Our services encompass order processing, inventory management, customer support, and digital marketing, among others. We bank on streamlined processes, cutting-edge technology, and a dedicated team to provide cost-effective solutions designed to meet each client's specific needs.

Contact us today to optimize your operations and reduce costs effectively!

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