Why and How to Keep Your Overheads Low
There are many e-commerce businesses out there that are struggling because they have high overheads.
This can be a major issue for a business, as it can lead to them running out of cash and eventually going bankrupt. It's going to sink like a boat with a hole in the hull.
In this article, we will discuss why it's important to keep your overheads low, and how you can do so. We will also provide some tips on how to reduce your overhead costs without sacrificing quality or service.
But what are overheads?
Overheads are anything your business spends money on that is not directly related to developing products, marketing those products, or generating sales. This can include costs such as rent, employee pay, and other administrative costs. While overheads are necessary for any business, it's important to keep them as low as possible to maximise profits.
Think of your business as a boat, the hull of the boat rather is necessary to keep it afloat. No hull, no flotation. But if you pack the hull full of unnecessary stuff, the boat is gonna sink.
So how do you keep overheads down? How do you stop the hull from getting overloaded with unnecessary stuff?
Pay attention to these four aspects:
Is the extra cost necessary to keep the business afloat?
- Does it need extra effort to be diverted away from product creation, marketing and sales?
- If it does, is it justified?
- Finally, is there a way to lower the cost?
Let's consider the following scenarios:
Scenario 1: Say you're considering spending money on new office space. Before making any decisions, ask yourself whether the extra expense is necessary for the business. If not, then it's best to avoid unnecessary expenses. Instead, focus on other areas of the business that may be more important or more in need of funding. Consider how an expense will impact the business. For example, expensive office space may make it difficult for the business to expand in the future or hire new employees. On the other hand, a cheaper alternative might be more flexible and allow for more growth. But it's also important to consider the consequences of not spending the money. In some cases, not spending money can actually be more costly in the long run. For example, if a business doesn't have enough storage space, then it may end up having to pay for storage fees or lose customers due to a lack of inventory.
Scenario 2: You can keep your overheads low is by outsourcing certain tasks and automating your processes. This can be a great way to save money, as you will only have to pay for the services that you need. For example, if you are running an online store, you may want to outsource your customer service and order fulfilment. You can also create dozens of email automation such as welcome flows, cart abandonment flows, birthday flows and many more. I'm talking about easy “set and forget” automation that is sent to your customers and potential customers without you lifting a finger. I used email to consistently drive over 30% of my website revenue for my former fitness brand, Beast Gear and even kept the repeat customer rate at over 12%. You can check the article I've written about why you have to use email automation here.
Scenario 3: Another tip to keep your overheads low is to negotiate with your suppliers. This can be a great way to save money, as you may be able to get a better deal on the products or services that you need. If you are an online retailer, you may want to try and negotiate with your supplier for a lower price on the products that you sell. This can be a great way to reduce your overhead costs without sacrificing quality or service.
By following the tips mentioned in this article, you can ensure that you keep your overheads low and your business remains afloat. Ask yourself these four questions so you can make sure that you're making the best decision for your business.
If you found this article helpful, be sure to check out my other articles on e-commerce!