How do you control costs?

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Herts, England United Kingdom
Andy
Kudos: 11,637
Joined: Jan 1, 2001
How do you control costs?
21 Jan 2015
After last week's question How do you increase sales, let's look at it from the other side of the equation: your costs or expenses.

As a business, how do you keep your costs under control? How do you go about lowering them?
Andy Geldman, Web Retailer
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Garland, Texas United States
Retail Web Diva
Kudos: 150
Joined: Dec 2, 2014
Re: How do you control costs?
21 Jan 2015
@Andy Wow, that is a great question! I sell online, so there is a LOT of paper work and shipping supplies. I buy computer paper and shipping tape by the box.

When placing inventory orders, I try to order enough to get FREE shipping. That savings adds up over time.

I use Free USPS Padded Priority Flat Rate Mailers when I can. That saves me $2.00 to $3.00 per package in shipping cost plus the cost of the mailer.

I buy reduced price computer ink in bulk on eBay. It works great, I have never had a problem with it. The cost is a fraction of what I pay for new computer ink.

I am always looking for ways to save on overhead. If anyone else is in a similar business and has other ideas, please share them.
Lawanna Bean
Brisbane Australia
QrateTV
Kudos: 51
Joined: Jan 23, 2015
Re: How do you control costs?
23 Jan 2015
Sounds like a fairly obvious statement, but it can be quite difficult to do: the first step is to record what you are spending and where. If you don't understand what your costs are and where you have the potential for savings, you won't be able to control them effectivelt
Herts, England United Kingdom
Andy
Kudos: 11,637
Joined: Jan 1, 2001
Re: How do you control costs?
23 Jan 2015
Just seen this (very good) article on the same topic!

www.sellbrite.com/blog/ecomlaunch-8-cut-ecommerce-costs/

Summary:
  • Purchase discounts
  • Shipping rate discounts
  • Packing material efficiency
  • Payment processor fees
  • Custom development costs

  • Sellbrite have a great ecommerce blog, I recommend it.
    Andy Geldman, Web Retailer
    Please follow on Twitter, Facebook, LinkedIn or Google+
    Garland, Texas United States
    Retail Web Diva
    Kudos: 150
    Joined: Dec 2, 2014
    Re: How do you control costs?
    23 Jan 2015
    @QrateTV You are spot on. You do have to understand what you are spending in order to cut costs. Sometimes in the thick of things, it's hard to stay on top of it.
    Lawanna Bean
    Nottingham United Kingdom
    Bigian13
    Kudos: 2,304
    Joined: Feb 21, 2014
    Re: How do you control costs?
    26 Jan 2015
    Cutting costs is a great idea, but do not cut quality !

    We already buy direct from the manufacturers and are getting the best price available, so the only savings we could make are on packaging and shipping costs. (Unless we pay the staff less than the minimum wage !!!)

    We use Royal Mail 2nd class post for most of our UK deliveries, so when a courier firm came to us and said that they would do a tracked service for the same price as standard 2nd class we gave them a try. INR cases for Royal Mail ran at less than 1%, the new courier at just under 5% with terrible customer service. We did not use them for long.

    We have a weekly order of mailing bags from a local firm, good quality bags and they have never let us down. Company rep from another firm came to see us and said he would beat any price as they were the manufacturers. Sent us a sample and all looked good. Only downside was we had to order a months supply which we did. When we came to use the bags, they did not seal properly, were easily ripped, and our labels did not stick properly. The bags got sent back.

    So in our experience, trying to save a few pounds each month resulted in more work for us as well as unhappy customers. Not really cost effective.

    When trying to cut costs, make sure it does not affect your customers.

    Ian
    E-commerce , love it or hate it, that's why we are here
    United Kingdom United Kingdom
    kaladanda
    Kudos: 124
    Joined: Apr 14, 2012
    Re: How do you control costs?
    27 Jan 2015
    You forgot staff. Keep good productive staff, let go of the unproductive staff. The ones that take one too many fag breaks, tea breaks, go to the toilet every hour, take an extra five minutes longer for lunch, check their phone for WhatsApp messages, chart away to other staff whilst all stopping their work. No wonder why Amazon keep their warehouse staff in order
    Midlothian, VA United States
    Jax Music Supply
    Kudos: 2,387
    Joined: May 25, 2009
    Re: How do you control costs?
    28 Jan 2015
    I've got to agree Qrate. It is amazing to me (participating in the number for forums and Facegroup groups that I do) how many people do not track their sales and expenses. I control costs by looking at several key metrics:

    1. Gross Profit. For me, this is gross revenue minus cost of goods sold minus merchant expenses (eBay, Amazon, Paypal fees, etc). The gross profit percentage goals help me keep a handle on changing merchandise cost as well as fees associated with selling.

    2. Shipping Cost - cost of shipping items. This includes actual postage as well as shipping material (packages, envelopes, etc.).

    3. Variable costs - this is the shipping cost/revenue plus gross profit expenses. These expenses vary with sales volume so looking at it as a percentage of revenue provides another check on changing fees or cost of goods sold.

    4. Overhead - overhead basically comprises any non-variable costs that are left. Generally, this is salaries, non-sales tax, storage rental, equipment maintenance, software, etc. These expenses tend to be there regardless of revenue.

    I tend to look at overhead very closely. If I have my overhead under control, increasing sales results in a greater margin as the contribution margin of each sale increases significantly once you have cleared your overhead. Example:

    Example 1
    Revenue: 10,000
    Gross Profit: 4,000 (40%)
    Postage: 1,000 (10%)
    Overhead: 3,000 (30%)
    Profit: 2,000 (20%)

    Example 2:

    Revenue: 12,000
    Gross Profit: 4,800 (40%)
    Postage: 1,200 (10%)
    Overhead: 3,000 (25%!)
    Profit: 3,000 (25%)

    So, a low fixed overhead allows you to leverage an increase in sales to significantly increases in profit.

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