Know and control the costs of sale
The retailer or brand must identify these expenses, and quantify them, to gain optimal profitability control, adapt the pricing strategy to costs, and avoid potential losses if necessary.
Maria Jose Guerrero
Costs of sale relate to the money an e-commerce business invests in promoting, distributing, and delivering its products to consumers. These are the expenses incurred by the company so that items reach customers. The retailer or brand must identify these expenses, and quantify them, to gain optimal profitability control, adapt the pricing strategy to costs, and avoid potential losses if necessary. From Minderest, we explain the different types of costs of sale and how to control them.
Types of costs of sale
- Direct: these are the expenses most clearly derived from shipping and delivering products. This group includes the cost of packaging, distributors, or the commission sellers pay when using different sales channels.
- Indirect: these expenses are part of the sales strategy and encourage the user to be attracted to your product and value buying it. In other words, marketing campaigns, the sales team's contact with customers, or social media campaigns.
- Fixed: This group includes the expenses that the e-commerce must spend periodically simply to be open and to have the necessary infrastructure to serve customers. They do not vary with demand or customer behaviour. This includes paying rent for premises, should the business have a brick-and-mortar store, or workers’ salaries, for example.
- Variables: Finally, variable expenses may increase or decrease depending on sales volume. These expenses are generally due to:
- Purchasing raw materials or products.
- Outsourcing services.
- Commissions that vary according to sales volumes, such as those imposed by payment gateways or marketplaces.
Discounts for purchasing a large number of items. In these cases, the benefits are reduced slightly, but customer loyalty is boosted.
How to manage costs of sale
In addition to knowing and identifying different types of expenses, it is crucial to have a cost of sale budget to manage the e-commerce’s profitability. In this budget, you can consider the socio-economic context and possible factors that will alter demand, such as Black Friday or an economic recession. At the same time, you can have a historical analysis of your own sales and expenses, to forecast costs based on those made by the business in previous years.
When preparing and adapting the budget, you can check the costs applied by your suppliers and try to negotiate new prices with them, or even change partners. Many companies have done this following supply chain issues caused by the return to normality after the worst of the COVID-19 pandemic.
Tailor your pricing strategy to your e-commerce’s needs
Ultimately, the dynamism of your pricing strategy will also help you manage your expenses better. With dynamic pricing, you can increase or decrease the prices of your products and services to generate higher revenue and cover your costs of sale. With the help of automated pricing tools, you can adapt your prices to your needs and supply and demand conditions without reducing your profit margin. Today's suites also feature artificial intelligence to optimise pricing.
Find out how Minderest can take your business to the next level.
Contact our pricing experts to see the platform in action.
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