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3 Cost-Cutting Strategies for Frugal Online Retailers

Howard Goldstein
Howard Goldstein

Here's how to cut costs while maintaining the quality of your products and services.

Every profitable business wants to make money. A big part of that, however, depends on how well that business can manage costs, especially online retailers that have to compete in an increasingly overcrowded e-commerce industry.

E-commerce is one of the fastest growing industries across the globe. Revenues from e-commerce sales globally are projected to close at about $2.8 trillion by the end of the year, which is more than double the figure registered in 2014 when online retail sales stood at $1.3 trillion.

While this budding platform presents an opportunity for retailers that want to sell online, it also fosters stiff competition as more entrepreneurs get into the space. Online retailers must look for ways to stay relevant and profitable in the face of competition, all without interfering with the quality of products or services that they offer.  

Managing costs, therefore, becomes a huge part of business strategy for online retailers. Here are a few tried-and-tested strategies for cutting costs and infusing a frugal – not stingy – mentality as you grow your online business.

1. Plan for the long term when starting out

One of the most practical ways of cutting costs is simply making the right investments in your business from day one. For an e-commerce business, that means spending a decent amount of capital on your site’s design, web hosting, marketing and other core services while avoiding the temptation to go with the first affordable freelancer you find on Craigslist.

If you compromise on some of these core services from the start, you open yourself up to extraneous costs. Don’t settle for the cheapest alternatives during the early phases of your venture. Get a digital marketing specialist to draw you a marketing plan that will guide your business into the future, and find a web hosting service with a decent server response time, even if you’ll have to spend a few extra bucks along the way. Slow servers and downtime are often associated with slow-loading pages, which in turn contribute to page abandonment and higher re-engagement costs.

2. Streamline your free shipping policy

Every e-commerce retailer, regardless of niche and size, must deal with shipping. And for many e-commerce retailers, shipping is usually the source of many operational expenses, sometimes taking up to 70 percent of total operating expenses as cost of sales.

There are many elements of shipping that can drive your costs into an unreasonable and unsustainable territory. Free shipping, for instance, can be a costly endeavor if not properly planned. Free shipping is never really free; someone must meet the costs of logistics and delivery, usually the customer or a third-party shipping partner.

However, many third-party shipping providers have a provision for flat rate shipping, which you can use to reduce shipping costs for you and your customers. You can also work the cost of shipping into your product’s price, which can help you cut costs while offering free shipping. Just be sure to keep your prices at par with your competitors' to avoid an exodus.

You can further cut costs by implementing simple practices around your shipping and handling department. Reuse bubble wrap, paper, crinkle paper and other forms of packaging whenever you can, especially if you receive packages of your own. These savings, while seemingly minute over the short term, can help you cut costs while making free shipping work for you.

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3. Mitigate issues involving your checkout system

The checkout phase is the most critical portion of the customer journey. Most customers who abandon their carts often do so at this stage, which is why it only makes sense for online retailers to throw money at their checkout system.

But at the same time, your checkout system can be one of the biggest sources of extraneous expenses. Chargebacks, for instance, can see online retailers incur huge costs related to penalties, especially when customers keep on requesting for reversals.

Consequently, reducing chargebacks can help you save a ton in costs, which can often be accomplished by simply improving communication with customers, such as informing customers that shipping is not inclusive of the base price.

Payment processors and the payment methods you chose to accept on your site are also important considerations when determining where to cut costs. Be extra vigilant with payment methods that will cost you more in processing fees and transaction costs, and also explore different facets of technology, like Bitcoin, to help you reduce costs.

Image Credit: kan_chana/Shutterstock
Howard Goldstein
Howard Goldstein,
business.com Writer
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Howard Goldstein is the Chief Executive Officer of Priceless Funding Group. Mr. Goldstein has been in the business lending industry for over 20 years in a career that has helped hundreds of businesses launch and grow. Mr. Goldstein aims to help business owners get the capital that is needed with the terms that are deserved.