Understanding The Total Cost of Ownership For Your E- Commerce Website
Let’s face it; price is usually a leading factor in making a business decision, and choosing your next e- commerce solution is no different. Unfortunately, not all e-commerce solutions are built equally with many coming with hidden costs or caveats which you’d probably like to know upfront. In this post we’re going to look at some of the many points you should consider when choosing your next e- commerce solution and the effect these points have on your e-commerce TCO (Total Cost of Ownership).
Firstly it’s important to realise that when it comes to choosing your next e-commerce platform, the options available to you will usually fit into two broad groups:
e.g. Magento Open Source or Aero Commerce
Self-hosted solutions are just that, software hosted on a hosting platform of your choosing, whether that be a shared hosting solution or a dedicated hosted solution. You own the platform outright and are usually free to do with it as you please, making changes, moving hosts and even transferring themes to new systems. Typical ongoing costs include the cost of hosting itself, software and security updates and data backups.
SaaS (Software as a Service) / Cloud-Based
e.g. Magento Commerce Cloud, Shopify, BigCommerce, Visualsoft
SaaS options live in the cloud and are hosted by the software creator and licensed to you, usually at an ongoing monthly cost. It is important to realise the platform isn’t owned by you and just licensed, meaning you can’t take it to another host and if the service was suddenly shut down you would have to start from scratch. Typical ongoing expenses include the monthly license fee, functionality addons and sometimes a percentage of your sales.
Areas of Cost
Design & Build
Your website’s design and build is one area where pricing can be pretty similar irrespective of the chosen software option. The time and effort that goes into the design phase doesn’t change too much between platforms. The build of this design again can be very similar.
Licensing is the cost many people look at when deciding on their new platform. Some software can look very attractive at this stage such as Magento Open Source which doesn’t have a licensing fee or many SaaS offerings such as Shopify, which has a license fee of $29 per month for their basic plan at the time of writing.
It is essential to look at the coming 12-24 months, as changes within your organisation or your sales could significantly impact these fees.
Let’s take a quick look at three popular platforms, Magento, Shopify and BigCommerce with some typical examples of changes to your business in the first 12-24 months of operation:
You’ve just started your e-commerce site, and there are two members of your team. Your turnover in the first 12 months is £35,000.
|License Fee||$0||$29 / Month||$29.95 / Month|
You’ve been operating for 12 months, and you’ve taken on an extra member of staff bringing your total to three. Your turnover in year two is £100,000.
|License Fee||$0||$79 / Month||$79.95 / Month|
You’ve been operating for 18 months, and things are going well. You now have six staff members an annual turnover of £200,000 and have branched out with a dedicated wholesale website, each with one module to add free gift functionality.
|License Fee||$0||$79 / Month x 2||$79.95 / Month x 2|
|Free Gift Extension||$239 (one time)||$29.99 / Month x 2||¢0|
Extensions, Addons and Apps
Extensions, addons or apps add additional functionality to your website to fill your needs; this functionality usually comes with additional cost. We briefly saw an example of what can happen when we require additional functionality in the licensing information above. Many SaaS platforms continue the tradition of monthly fees for their apps, so in our previous example, the app that allowed us to offer free gifts cost $29.99 per month, per storefront. Compare that to the self-hosted Magento Open Source platform which allowed us to pay a one-time fee for the same functionality, saving money in the long term. It’s not uncommon with SaaS solutions to be spending at least a few hundred per month on these extensions.
A payment gateway allows you to accept credit cards, debit cards and other payment methods such as Apple Pay and Google Pay directly on your website. Many self-hosted platforms have popular payment gateways baked into their solutions. However, SaaS providers usually have custom solutions and will sometimes charge more for third-party payment providers. Again let’s take a look at three popular e-commerce platforms:
|PayPal Fees||2.9% + 30p||2.9% + 30p||1.85% + 18p|
|Platform Fees||N/A||Up to 2%||N/A|
Here you see that Magento allows PayPal as standard and the charges are those incurred by using PayPal itself. On the other hand, Shopify charges you up to an additional 2% for the privilege of using PayPal and BigCommerce bucks the trend and passes on a specially agreed discount they have through a partnership with PayPal.
Security is where SaaS usually comes into its own as a hosted, closed platform security updates are applied across the board for all of their customers as and when needed. However, self-hosted sites require a helping hand, which usually means a DIY approach or a maintenance contract with your web agency. You should usually budget at least a few thousand per year for security updates if you aren’t on a SaaS platform.
One huge negative for SaaS e-commerce solutions is that they aren’t portable. If at any point, you wish to migrate to a new platform or even if your SaaS provider were to stop operating for any reason you would be left without a site and starting from scratch. When you physically host a website yourself, you can change your hosting provider and take elements from it to use with a new site in the future.
When it comes to e-commerce, the choices are endless, and you should take great care not to look just on the surface of everything, but also a little deeper and to the future of your business. A reputable company such as Actuate Digital can help you make the best decision for your business, taking into account all of these points and more. Get in touch for a free no-obligation chat about your next project.