How to Determine Total Cost of Ownership (TCO) When Choosing an eCommerce Platform

Within any eCommerce platform selection, there needs to be a thorough accounting of the platform’s total cost of ownership (TCO). For the unfamiliar, TCO is an accounting assessment that offers a top-down view of an eCommerce platform’s expected costs in the long term.

This assessment may sound like business as usual for eCommerce procurement, but a survey by market research firm Forrester found that many businesses fail to account for the ongoing, realistic costs of ownership for their eCommerce solution.

Despite the fact that 82% of the firms surveyed required a 3 to 5 year TCO analysis before procuring enterprise software, 43% of all eCommerce projects assessed come with higher costs of ownership than were initially predicted.

We chalk this up to the tendency to overestimate the importance of up-front platform costs and underestimate the long-term TCO—particularly in regards to ongoing costs.

Ongoing Costs Affecting Your TCO

TCO is a crucial metric for eCommerce planning, from the impact on your initial budgeting to the ROI you earn over time. It also helps you get a better understanding of your internal capabilities with respect to how work is done. Of course, all of this is contingent on understanding the costs driving your eCommerce solution.

Monthly Hosting

Expect significant variability in monthly hosting costs across solutions, as each platform service provider will have his/her own unique calculation for determining monthly cost based on your needs and total usage. In this arena, be aware that you’ll have to work with your provider to talk baselines, and then determine which solutions work with your budget. Most solutions will range from the hundreds to thousands in monthly fees, with custom builds being more expensive.

Key Questions to Consider:

• What is the baseline monthly fee? What does scaling look like? If traffic goes up by X% over the length of the contract, how does that affect pricing?
• Are there any other measurable levels to the pricing? Orders? Users?
• Does the contract include a set length for the pricing?

Security Fees

Depending on the hosting environment selected in the above step, you may need to invest in a PCI-compliant infrastructure to boost eCommerce payment security. It’s one of those things that’s not really optional anymore; it’s a necessity for protecting cardholder data, and different companies will have different levels of compliance to reach. Certain platforms may do the heavy lifting for you here, but others (like Magento) aren’t PCI-compliant out of the gate—so keep in mind that you may need to invest resources in bringing your platform up to code.

Key Questions to Consider:

• If necessary, who is responsible for covering the PCI compliance expenses?
• Are more specific security audits required?

Annual License Fees

Beyond the usage and volume-based pricing of hosting, there may be a “license” fee in order to utilize the eCommerce software and application. This license fee may range from something small to well into 6-figures, based on the platform. (Shopify Plus, for example, charges an annual fee of $24,000 for customers with less than $9.6 million in sales each year.) This is something that should be readily apparent in your TCO due diligence, so make sure you know the costs going in.

Key Questions to Consider:

• Are there any non-hosting license fees to use the platform?
• Does the licensing charge(s) change over time?

Support Costs

Support fees are a big area of pricing volatility. Depending on which support channels are available and what type of service package you purchase, you may be leveraging multiple options at once—direct email support, phone, chat, community forums, and so on. Some of these will be included as part of your monthly fees while others may not. In particular, high-value services like emergency and on-demand support can be significantly expensive due to their immediateness, so expect to pay a little extra for the privilege.

But in general, know that some support costs will be unavoidable. Many platforms require you to purchase a support contract with a fixed or capped number of hours per month. And as you incorporate more types of support and maintenance retainers, your costs will increase accordingly.

Key Points to Consider:

• What type of platform-level support is available and how accessible is it? Phone, email, forum, etc. are all options.
• Determine the pricing charges for a set number of support hours.
• Can you estimate how much time you might need early in the project vs. later stages?
• Ask about the structure of your account team. Will you have a dedicated account manager? If so, that may help to reduce support costs longer term.

Training Costs

Training is one of those sneaky expenses that always seem to eat up more resources than we expect. Consider how your new platform differs from your current build and what type of training will be required. You’ll have multiple types of users who will need to learn the system, a process which comes a bit easier when you have access to eCommerce experts who have the knowledge to “train the trainers.”

Key Questions to Consider:

• What training is available pre-launch?
• What type of training is provided – online, documentation or in-person?
• How are training and learning handled post-launch? Is there a direct contact?
• Are there opportunities for post-launch platform learning such as webinars?

Custom Development and Integrations

Third-party customizations will need to be accounted for as well. This includes the ongoing costs of payments and licensing related to your modules and plugins. You likely have integrations for your email service, order management, ERP, fraud prevention, and more. Depending on your infrastructure, these integrations may add hundreds (or thousands) of dollars each month to your operational costs, so keep this in mind if you have a complex system.

Key Points to Consider:

• Review the current integrations you have implemented and see what the platform includes out of the box – the integration may need to be recreated if the new platform doesn’t have built-in support.
• Beyond the development costs related to third-party integration, are there any additional costs such as service updates or fees to make the integration functional.
• With a new platform, you may have the option to review and integrate new front-end and back-end tools (analytics, CRM, email provider, automation), so factor those new options into your budget.

Transactional Costs

Your eCommerce solution may levy additional transaction fees on top of their monthly service charge. These are often percentage-based (Shopify will take 0.5% – 2.0% of every sale in most cases), and the charges add up quickly. Work with your eCommerce provider to hammer out these details. Often, service providers offer reduced transaction fees on higher-value plans, so be aware that while transaction fees are often unavoidable, you may be able to reduce the impact of this cost area.

Key Points to Consider:

• Can you apply your current (and planned) eCommerce transaction metrics to the platform transaction tiers to get a sense of what your transactional charges will be?
• Be sure to combine the transaction costs ($X per order, per-user or per API call) in combination with the monthly hosting charges in totality. The platform with the lowest hosting charges may become significantly more expensive when transaction costs are included.

Understand the Total Cost of Ownership for Your eCommerce Investment

Ongoing costs represent a substantial part of yo>procurement decisions should be made in tandem with key stakeholders across the whole organization, including marketing, finance, and IT. Curiously, Forrester’s above research revealed another interesting finding: 57% of firms rely exclusively on IT to build their TCO assessment models.

With the different and varying cost vectors lined out, it’s clear why this strategy doesn’t produce results (and why so many companies underestimate their TCO)! Companies that want to get a full accounting of their platform’s costs need to go beyond these basic models and work towards full transparency of all eCommerce platform costs—both up-front and ongoing.