Back in your pocket: Top 6 small business expenses to consider passing on to customers (Retail & eCommerce)
- November 9th, 2016
- 7 mins READING TIME
Ah, the boss life. It comes with its perks, and it’s an exciting learning curve that we’re glad many are more keen on exploring. We are advocates of the entrepreneurial spirit, after all, and we’ve also been through the curve ourselves. One of the common mistakes we often see new business owners making is selling themselves short (including, in the beginning, yours truly!). When you’re first starting out, sometimes you don’t realise that operating a business fills up more line items on that invoice than first expected. Here’s some insight on some unexpected costs that you should prepare for when you’re running an ecommerce or retail business.
To help you, here are six less obvious costs that you can – and should – pass on to your customers.
1. Credit card processing rates & fee
According to a recent American study, 66% of all point-of-sales (POS) transactions are done with plastic – credit, debit, or gift cards. But opting to accept credit cards incurs a surcharge fee by the major credit card issuers. Here in Australia, the average person pays over $130 in credit card surcharges every year. On the other hand, not accepting credit card payments means you’ll lose a huge chunk of potential sales.
The 3% additional fee of each transaction value that comes with card payments might seem small on its own, but, how does that saying go? The sum of all parts and whatnot.
These days, that surcharge has become the norm since so many transactions are made electronically. By the same token, your profit margins dictate the need to pass on these types of fees to customers and that’s just the cost of doing business. Clarify to your customers that they’ll be paying an added percentage for credit card payments and they will understand.
If you’d like to set up payment gateways, we recommend the following payment providers. They still charge a fee, but their ease of use, great customer service, and flexibility earn them bonus kudos.
Pro Tip:
Recently, The Competition and Consumer Amendment (Payment Surcharges) Act 2016 has put a ban on “excessive” credit card surcharges. Go figure. With annual costs of over $1.6 billion, surcharges are a massive expense for credit and debit card users.
The new policy states that “retailers will no longer be able to charge more than the cost of processing the transaction, which affect Eftpos, Debit MasterCard, MasterCard Credit, Visa Debit, Visa Credit and American Express cards.”
It will be rolled out in two stages: the ban has already started on 1 September 2016 for “large retailers”, and for all other merchants, it’ll start on 1 September 2017. Find out more here.
2. Shipping & handling costs
As an ecommerce business, you’d benefit greatly from aligning yourself with a shipping company that integrates with your website platform. Shipping and delivery costs can definitely be passed on to customers, but it’ll look much better if you work the costs into your item prices so you’re able to offer “free shipping”. When calculating shipping costs, don’t forget to include all the extra tidbits such as boxes, mailers, packing materials, tape, and so on. Business death by bubble wrap is the last thing you need.
Also, you might need to charge for “pick-and-pack” costs, which include locating, selecting, and packing the products according to specific customer orders.
Pro Tip:
Look for an order fulfilment company that suits your business specifically. Some offer great deals for businesses with low inventory counts and a high volume of sales, some are better for companies selling heavier items in volume, and some are great for multi-channel fulfilments. Make sure you choose the right one for you.
Here are some of our favourite shipping companies that are especially small business-friendly:
3. Rising production costs
This one might seem like a given, but it’s amazing how many new retail businesses take on the burden of rising production costs for fear of chasing away customers. Not only rising production or material costs; if you import or export any goods, you need to keep an eye on the Australian dollar and consider currency volatility as well.
An increase in the price of material or manufacturing can severely impact your bottom line. Be open and honest about what prices have gone up; include reasons why they’ve become more expensive, and how you’ve implemented the price hike into your own costs. You’d be surprised at how understanding consumers are when their needs are being met.
Pro Tip:
If you intend on paying and receiving money in a foreign currency, it might be wise to set up a foreign currency account to protect yourself from currency spikes. Otherwise, we recommend using TransferWise, an ingenious solution and platform for moving money across currencies at minimal cost.
4. Returns & a restocking fee
Sometimes, the shoe just doesn’t fit. Just as your customers are expected to cover shipping fees, they should also cover their returns or restocking fee. The latter is a percentage of the item’s price that you can charge should you choose to accept the return of an item beyond the specified return window.
A “returns fee” doesn’t really exist in the land of e-commerce, however, the shipping and handling of item returns should be at the expense of the customer. You can make the whole returns process much smoother by setting up a dedicated returns system and pathway on your site.
Pro Tip:
Don’t think of returns and restocking as merely an afterthought or byproduct of your business – it’s just as important as, say, your marketing and sales strategy. Keep it neat and organised. Make your returns and restocking policy easy to find on your website, and make the process easy for everyone, including yourself.
5. Insurances and Tracking
Knocking on wood just doesn’t cut it sometimes. A recent survey showed that 28% of all products purchased online are returned because they arrived in bad condition. Transit risks are a real issue – think: bad road conditions or stormy seas or instances of theft or even getting hijacked by pirates. Hey, you never know, right? Never fear – insurance is here!
Of course, whether or not you need this option depends on the product you’re selling and its value, but there are times when a customer will pay for extras like insurance and tracking just for peace of mind, especially if it’s a big ticket item. Add it in if your shipping or logistics firm charges you extra for it.
Pro Tip:
Some shipping providers may have insurance pre-built into the price, so it’s worth checking before you on-charge your customers.
6. Research or consulting expenses
As a retail or ecommerce business, research and consulting may sound irrelevant, but depending on your product, you may need to offer free consultations as part of your marketing strategy, both pre-purchase and after-sales. This is especially true if you’re selling premium products, such as electronics or jewellery. Your customers might also see your consulting as part of customer service that automatically comes with the package, which it is to a certain extent, but the real problems arise when your time is taken for granted and endless enquiries keep rolling in without a buffer.
Pro Tip:
Calculate how much time – on average and outside of normal customer service standards – is spent on consulting or research for each product sale, and add that onto the price markup.
Once you’ve nailed your transaction and customer service processes, you’ll have a better idea of how to communicate these costs to your customers. You’ll be glad you did – these small costs add up. Just make sure you’re clear about them from the get-go. There’s not much that’s more upsetting than hidden costs, and being upfront and honest is your best bet to having happy, satisfied customers, and a happy, healthy business.