Choosing what makes up your enterprise tech stack is one of the most important decisions your enterprise will ever face. For one, the platform you pick should scale with your business for years to come. Being locked into one you quickly outgrow (or never gets you off the ground) can be extremely costly. And no tech leader wants to be limited to one specific type of software architecture. This would mean hiring developers with very specific skill sets; it’s quite costly, and if you wind up migrating three to five years down the line, what do you do with those specialists?
In navigating such decisions, the big picture concept to understand is called total cost of ownership.
If you were shopping for a house, you wouldn’t make your choice based solely off the list price. Is there a roof you’ll need to pay to replace soon? How energy efficient is the house? Is the house big enough to grow with your family, or will you probably be back on the housing market before long?
All this goes to show that your purchasing decision is best informed by a holistic approach that takes into account future costs (alongside your own personal needs). Picking an enterprise ecommerce platform for your business is very much the same, and that’s where total cost of ownership comes into play.
Learning to calculate total cost of ownership (TCO) will help you evaluate platforms beyond initial setup and implementation costs—taking into account annual fees, maintenance, third party services, and more.
Shopify’s TCO calculator can help your business save money right away. In this article, we’ll show you how plugging a few basic data points into our calculator can unlock significant savings potential right before your eyes.
In this article, we’ll show you how to use our TCO calculator to find the right approach for your business.
Total cost of ownership is composed of one-time costs like implementation and setup, plus recurring costs such as platform fees and tech stack costs, as well as operational and support costs.
Here’s a handy rundown of what to consider when calculating TCO:
Total cost of ownership breaks down into three primary drivers:
Let’s dig into each of them in more detail:
Ecommerce platform implementation requires upfront investment to set up the systems, integrate the platform to existing enterprise applications, and develop the front end and back end of the ecommerce website. This could be done in-house or with partners—all of which add to an enterprise’s overall implementation costs.
Implementation and setup costs are incurred when configuring the ecommerce platform and can be broken down into five main costs: front-end design, front-end implementation, back-end implementation, system and setup, and data migration. Here is an explanation of each:
A couple other notes on implementation and setup costs:
All ecommerce platforms users incur platform fees, which are ongoing costs required to continuously use their vendor platform, typically dependent on their gross merchandise value (GMV). Additional third-party applications may be needed to form a full ecommerce stack, which will drive the cost up for enterprises.
Platform fees are composed of four categories, inclusive of general platform fees, payment processing fees, and other wraparound costs such as platform support and add-ons. Here they are in more detail:
Operational and support costs are recurring expenses that enterprises incur to keep the platform live and functional, driven by the technical resources required, as well as the necessary human resources needed to maintain and enhance the ecommerce platform.
Operational and support costs are composed of four main categories:
Operational costs differ across platforms, with some platforms requiring additional infrastructure costs such as hosting, security, SSL, and so on. Such costs further increase as organizations need scalable computing and security infrastructure to manage a large volume of transactions.
Enhancements and maintenance drive the need for specialized in-house talent or partners that provide ongoing support services, which drive operational and support cost up.
Once you’ve calculated TCO, it’s important to analyze what you’ve learned, within the context of your own enterprise. Know exactly what your business is looking for, so you can evaluate staying versus switching, based on your current situation and what you’re looking to do in the future.
Here are the useful questions to ask of your platform:
Total cost of ownership is a pivotal tool for managing your enterprise’s budgeting and ecommerce needs. When applied to choosing an ecommerce platform, it can guide you through some of the most important decisions your enterprise will face. Our data shows that Shopify outperforms the competition when it comes to total cost of ownership, both in terms of lower maintenance and licensing costs, as well as higher conversation rates and average order value.
You can calculate total cost of ownership by starting with the initial purchase price, and then adding on all additional costs of operation—such as platform fees, tech stack costs, and operational and support costs—from across the platform’s lifespan.
Total cost of ownership could entail calculating the implementation and setup costs of an ecommerce platform, then adding on all fees and stack costs and recurring operational or support costs over the timespan you expect to use it. Using this figure as a guide, the company could then evaluate the pros and cons of purchasing this ecommerce platform in relation to their own needs and other options in the marketplace.
The three costs of ownership are implementation and setup costs, platform fees and ecommerce stack costs, and operational and support costs.
Total cost of ownership is important because it gives you a multifaceted, holistic calculation of how much a platform will cost you across a period of time. The better you understand total cost—beyond initial investment—the more accurately you can budget your enterprise’s future needs.
