The e-commerce supply chain is a complex multi-step process. From the manufacturing of finished goods, through to transportation, storage costs and delivery to the end-user, getting the goods to their final customer can be a lengthy and involved task.

One of the downsides of such a lengthy supply chain is that when costs are rising, this can mean every part of the chain can cost more to navigate. With so many steps, this means more potential opportunity for increased costs.

Being able to adapt your business model to be able to thrive during these challenging economic times is vital for the long-term viability of an e-commerce business.

Here are some ways to help your e-commerce business navigate these rising costs:

Pass on the costs to customers

While it may seem an obvious and simple solution to pass these increases on to customers, it’s not always that easy for businesses to raise their prices without jeopardising the ongoing viability of the business. If you’re operating within a discretionary market in particular, customers will often have a limit as to what they’re prepared to pay for your product before they decide to go without. Even though your costs to supply the product have risen, this doesn’t mean that consumers are happy to pay the increased price.  

Don’t wait until the last minute before springing a price hike on your customers; let them know in advance that changes are going to have to be made and explain the reasons behind this. If customers can see your decision is motivated by necessity rather than greed, they’re much more likely to be sympathetic to your approach. 

While increasing prices comes with a risk – that of potentially losing customers – there are also huge risks in failing to increase prices. Absorbing all of the increases yourself is a tactic that can see margins become wafer thin, something which can easily see previously successful businesses finding themselves unable to turn a profit in such a challenging and competitive marketplace. 

Regularly reviewing your prices and comparing these with the market should be on every e-commerce business owners’ to-do list.

Increasing the efficiency of your business model can help to highlight unproductive areas and allow funds to be diverted to more profitable areas of your operations. 

This may involve reducing your product offering or changing your shipping and returns policy. This is also a great time to take a fresh look at your current processes and procedures; investing in automation or an improved order fulfilment process for example, could allow you to scale your output beyond what you’re currently capable of selling. 

Caution should be taken if you foresee your current supply chain problems continuing for the long-term without having a plan in place to overcome these. Overburdening an already highly leveraged business with additional debt is only going to make a bad situation worse; however, as a temporary measure, while you work on repricing your products and cutting supply chain costs, injecting new capital can help your business bridge a temporary cash flow problem during this transitionary period. 

In practice, you may find the solution is a combination of all or some of the above options. While you may be able to increase your prices, passing on the full cost to customers may not be possible without being able to shave something off your supplier costs too. Meeting halfway is likely to be easier to accept for customers and suppliers alike.

While these are certainly challenging times, keeping a close eye on your supply chain and acting quickly to remove any unnecessary costs or knowing when to consider implementing a price hike, could help your business better weather the storm.

Noel Guilford

PS If you are considering adopting e-commerce as part of your business model you can download a complimentary copy of my e-book 'Clicks to Customers - A guide for business owners to building a thriving e-commerce business' by clicking the link below and entering the coupon code ECOM01 at the checkout.