How E-Commerce Businesses Can Optimize Operating Costs and Grow Profits

Tossing up a Shopify site and waiting for the money to roll in? Think again—launching an e-commerce business isn’t that easy.  

Between ad spend, software subscriptions, and everything, operating costs can eat your margins if you’re not careful. 

Let’s not forget about shipping costs. Leaning on white-label shipping can help cut those costs. With this model, you outsource shipping to a third-party provider while maintaining a branded delivery experience.

But what about other expenses? You’re not out of luck, though. There are several ways you can optimize your operating costs without sacrificing quality or customer experience. 

In this guide, we’ll share a few ways that will help you make your operations more cost-effective and keep your profits rolling in. 

#1 Run Lean With Ads

Pouring money into Google or Facebook, but those ad dollars aren’t actually bringing home the bacon? It’s time to get lean with your ad spend. 

Get crystal clear on your ideal customer; what are their biggest worries and what motivates them to make a purchase? The more specific you are, the less money you waste on folks who were never going to buy anyway.

It’s also super important to keep these audience segments separate in your campaigns. That way, you won’t waste money showing the same ad to everyone. 

MX Store, Australia’s largest online motorcycle parts retailer, is a case in point. It saw a consistent 10x return on its ad spend by creating super-specific campaigns for each product category instead of lumping everything together.  

Use retargeting as well, but do it the right way. When retargeting, avoid casting too wide a net. Instead, focus on warm leads; people who added to cart or visited your product pages multiple times. These folks are way more likely to convert.

Don’t sleep on organic marketing. Email marketing and affiliate programs cost way less than ads and often convert better because they are built on trust.

#2 Rework Your Shipping Strategy

Shipping costs can be a silent profit killer. You might think you’re doing great with sales until you realize you’re hemorrhaging cash on fulfillment.

Everyone loves free shipping. But you don’t have to offer it on everything. Set a minimum order amount to qualify. Research shows that 70% of shoppers add extra items to their cart just to avoid paying for shipping.  

Before you pick the right threshold, take a look at your current average order value. If your average order value is around $50, setting the free shipping threshold at $70 could be a smart move. It encourages extra spending without feeling out of reach. 

Also, audit your current shipping setup. If you’re not using the most cost-effective carriers, renegotiate rates or switch to a different one. 

Even better, partner with a logistics and distribution company. That can shave off a significant chunk of your shipping costs.

Choosing the right company is important. ShipOffers advises teaming up with someone who truly gets what your company stands for and what you need to thrive. So, consider their capabilities in areas such as premium packaging, around-the-clock customer service, and marketing support.

#3 Bundle Your Products

Want a sneaky-smart way to get customers to happily spend more and feel like they are getting an amazing deal? Say hello to product bundling. 

It’s low-key one of the smartest ways to move more inventory and increase average order value (AOV). 

Instead of selling just one thing, group a few related items together. Offer a slight discount on the bundle, and watch your AOV climb.  

Here’s why it works: when you group complementary products together, you’re increasing the perceived value for the customer. At the same time, you’re improving your margins on the back end. You get to move more inventory and reduce shipping and handling costs in one go.

Nordstrom is an excellent example. It has cleverly curated a dedicated page that features coordinated sets for both men and women. Customers can purchase them as a bundle.

Just make sure your bundles make sense. Random combinations can confuse people or feel like a cash grab. 

Another trick is to pair slower-selling items with your bestsellers in a bundle. It’s a fantastic way to introduce customers to other products they might not have discovered otherwise. Plus, this strategy helps you move inventory that has been tying up your cash and valuable space.

You don’t need to slash and burn to make your e-commerce business more profitable. Making a series of small, smart tweaks in the right places can make a massive difference over time. Those small wins really snowball. 

So, keep tightening the screws in the right places, and over time, you’ll see your costs drop and your profits rise.