An e-commerce business consists of numerous facets, and as a result, forms a multi-dimensional concept that caters to our every whim and fancy with the utmost convenience. Being at the helm of such a business organization requires you to consider various costs and expenses. Of these, the costs can be divided into fixed and variable, depending on their nature.
The Variable Costs For Ecommerce
A variable cost is one that changes its value depending on the proportion of your sales volume and various other considerations. The reason it becomes so important to take into account is that it eats into your profit margin and as a result, determining how much of your profit is going to be spent in fulfilling such costs becomes impertinent while deciding the profit margin you set to begin with. So, here are some of the crucial variable costs that show up while running an e-commerce business.
- Advertising and marketing costs –
When it comes to running an e-commerce business, the marketing aspect of it becomes a pivotal factor. However, the costs riding on such campaigns depend upon the proportion of sales, and the extent of the usage of the advertising tools. For example, in the case of PPC advertising, the costs depend upon the number of clicks generated through such an advertisement. Even the usage of social media ads, or Adwords require different cost rates, depending upon the volume of traffic these ads have managed to generate.
- Commission fees –
Selling through an online platform often requires you to make use of multiple marketplaces and third-party platforms to get your products and services across to customers. None of these transactions can take place unless you pay a commission fee. However, almost all the payment models set in place by the numerous platforms out there, make use of a commission fee that is dependent on the volume of sales, so your costs might vary accordingly.
- Shipping costs –
Most e-commerce platforms make use of third-party shipping services to ship their products to their users accordingly. The costs involved in such an exchange will invariably be a variable cost since the fees charged on the shipped products will always rest on the volume of your sales, and generally, a specific rate is charged, which leads to a change in the value as a whole depending on the number of sales you have generated. So, shipping costs should definitely be a top priority in your list of variable costs.
- Credit card fees –
Credit card fees should not be confused with the fixed costs aspect of it, which occurs on a monthly basis. Rather, the variable aspect of credit card fees refers to that part of the costs which a business has to incur every time it accepts a credit card purchase from its customers. This will quite obviously depend on the level of sales you manage or make, and therefore, falls under the category of variable costs.
- Payment processing fees –
Payment processing fees are also an important part of variable costs when it comes to the e-commerce business. Almost all businesses offer third-party payment services depending on what their customers make use of. The commission paid by the business for this, changes according to the level of sales, and therefore its value is directly proportional to the sales volume.
While variable costs can be difficult to ascertain, a good sales forecast can help you predict it to a large extent. Determining an estimated value of variable costs your e-commerce business has to incur is extremely impertinent since it is used to decide the profit margins you set.