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Increasing profit margins for your online business through better cost management

22 Jan 2021

Article by Pitney Bowes head of shipping for A/NZ Ben Seal.
 

COVID-19 had a significant impact on business in 2020 as it accelerated the focus on e-tailing for many companies. However, online retailers and companies developing a digital offering are still susceptible to reduced profit margins due to unanticipated costs. Therefore, businesses need to refine their cost management strategies and understand where, and how, to invest in the business for maximum benefit.

Transitioning to a new operating model quickly can be confronting for organisations and can often lead to issues with cost management. However, organisations can scale operations and increase profitability with discipline and planning, to minimise or avoid disrupting their traditional business.

One key area of focus is cost management. Understanding different revenue streams is critical for any organisation. Knowing where money is coming from, where it’s going, and the potential for any losses or missed opportunities can significantly impact the bottom line. 

Online businesses should follow the path that customers take before they finalise a transaction so they can uncover any unexpected costs, including excessive shipping costs, poor pricing strategies, and excessively high customer acquisition costs.

Issues with cost management are typically the result of small, repeat transactions that aren’t regularly reviewed or closely managed, rather than attributable to larger transactional issues. Understanding the customer journey can help to identify where money is being lost so this can be addressed, reducing costs.

By investing in solutions that streamline the ordering process, companies can reduce the number of abandoned carts and lost sales. Once these orders are placed, the next step is to improve the customer experience and create customer loyalty by focusing on a customer’s lifetime value and not just the individual transaction. 

Facilitating access to different delivery options for customers depending on their location can contribute to this, especially as it provides a more streamlined process for the customer, and they are likely to return as a result. Several software solutions can streamline this process.

Customers will consider the ordering and shipping process, pricing, product quality, and more when they engage with online retailers and businesses. Organisations must consider each of these elements to maximise opportunities.

Profits should be reinvested into the business to continue making high-quality products for customers, while also improving the customer experience. It’s essential that companies understand how to continue pleasing customers while also making a profit.

One critical step is understanding how careful planning in the shipping process can lead to better customer experiences without cutting profits for the company. Customers will often select free shipping to avoid high shipping costs. However, this can lead to higher costs for the company when shipping fees can’t be recouped. To prevent this, companies could consider integrating shipping costs into orders, or setting limits or minimum order amounts to qualify for free shipping.

Investing in good processes may involve higher costs at the outset. However, these processes can be critical in recovering costs through increased profit margins. When companies make money, they can further invest in better solutions to improve the customer experience and their own bottom line.