How to boost online profit margins through cost management

Online sales have been boosted for many companies as a result of Covid-19, which had a significant impact on business in 2020. However, companies developing a digital offering are still susceptible to reduced profit margins as a result of unanticipated costs, suggests Ben Seal, head of shipping, Australia and New Zealand, Pitney Bowes.

It’s essential for businesses to refine their cost management strategies and understand where, and how, to invest in the business for maximum benefit, he says.

“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 any disruption to their traditional business.”

One key area is cost management. It is critical for any business to understand different revenue streams: knowing where money is coming from, where it’s going, and the potential for any losses or missed opportunities can have a big impact on the bottom line.

Seal advises online businesses to follow the customer journey to the point of 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.”

Streamlining the ordering process allows firms to reduce the number of abandoned carts and lost sales.

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.

Easy access to a variety of delivery options for customers depending on their location can help boost the experience.

Customers placing an order take into account the ordering and shipping process, pricing, product quality, and more when they engage with online retailers and businesses.

It is critical that organisations consider each of these elements to maximise opportunities, suggests Seal.

And that means investing to achieve efficiencies and great customer experience.

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

For instance, customers tend to select the free shipping option to avoid excessive shipping costs. However, this can lead to higher costs for the company when shipping fees can’t be recouped. To avoid this, companies could consider integrating shipping costs into orders, or setting limits or minimum order amounts to qualify for free shipping.

Seal says “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.”