How Reducing Costs Helps Your Ecommerce Business Grow

Rethink traditional notions about cutting costs and uncover strategies that can enhance new opportunities for brand growth. Essential reading for leaders aiming to optimize operational efficiencies while fostering scalable growth.

Cost reduction has many negative associations, including downsizing, scrapped plans, and unrealized goals. But it deserves an open-minded approach because the truth is that cost reduction does not have to be anti-growth. A savvy roadmap for cost reduction can increase your company’s revenue and unlock new opportunities.

Reducing costs is an ongoing process, not a standalone action. Having the whole team on the same page, with specific, attainable goals in mind, is essential. After all, missteps in cost reduction can be disastrous, especially for up-and-coming companies with limited resources and no lengthy track record to fall back on. We’ve all heard horror stories about storefront downtime, unhappy customers, and lost sales. Fortunately, there are pathways to cost reduction that also support growth.

Perhaps your business is already used to conducting audits for this very reason. Audits are helpful, but there’s much more to consider when optimizing cost reduction. A lot of it has to do with what ecommerce platform you choose in the first place. In this post, we’ll guide you through a growth-friendly approach to cost reduction for your business.

Cost reduction in commerce

When ecommerce businesses set out to reduce costs, here are some common reasons why:

• They’ve detected redundant or outdated licenses.
• Features not offered natively on their current platform have become costly to develop and implement.
• Operational and support costs are too high or out of sync with their business needs.
• Their acquisition costs are too high, and they’d like to seek more efficient ways to attract new customers.
• They want to lower their total cost of ownership (TCO).

Of course, there are more reasons businesses seek to reduce costs, but these are among the key areas where buyers can lower expenses while promoting growth. As we explore them in more detail, consider the cost variance based on different types of ecommerce brands and their product offerings.

When evaluating ecommerce brands, keep these two variables in mind:

• The extent of the scalability they offer compared to your current and future requirements
• The quality of post-sale support they offer, especially as it pertains to your ongoing implementation plans

The ecommerce brand that excels in these areas will likely give you the most bang for your buck and help you scale—even years down the line—without expensive, work-halting headaches.

A fear of implementation struggles (and plain old complacency) often keeps businesses from switching to a more advantageous platform. Gartner® Peer Insights™ analyzed 188 Peer Insights reviews to identify lessons learned implementing digital commerce platforms. Gartner Peer Insights recently analyzed over 180 reviews from digital commerce leaders. They concluded what we believe and have long championed—that leaping to the best ecommerce platform for your business is worth doing right away. One digital commerce leader from the retail sector attested:

“The most important element to analyze beyond the branding noise is the platform’s agility to scale to what is required now and in the future with promptness. Plus, a team supporting that both technically and one-on-one is a must.”

Shopify’s extensive app ecosystem is ideal for scalability. Our engineers stay on the pulse of the industry’s needs, releasing hundreds of new features with each Edition every six months. And with Shopify Plus Priority Support for 24/7 technical help, we’re ready to meet you where you are and guide your business well beyond the implementation process. Other ecommerce platforms on the market, such as Salesforce Commerce Cloud and Adobe Commerce (Magento), offer comparable scaling and support opportunities. As we go on, we’ll closely examine how they stack up with Shopify.

What does a successful cost-reduction initiative look like?

Understanding cost reduction begins with understanding TCO. Think of it like an all-encompassing cost calculator for your business. Here are the three primary drivers of TCO and how they relate to a successful cost-reduction strategy:

1. Platform fees and ecommerce stack costs

Platform fees are the ongoing costs you’re charged (usually monthly) to license the usage of your platform’s services. Additional third-party applications may be needed to fill out your ecommerce stack, which drives up costs.

Some enterprises offer low licensing costs but don’t provide native enterprise functionalities and operations, which you’ll have to pay for outside the platform. Those fees can pile up quickly. Instead, to reduce licensing costs, look for a platform that will provide reasonable platform fees both up front and in the big picture, with robust native functionality provided in the platform.

According to ecommerce platform comparison research commissioned by Shopify from a leading independent consulting firm, Shopify users reported the lowest platform costs on average, compared to other major commerce platforms in North America. Here’s how it breaks down:

• WooCommerce: 32% higher costs on average due to increased support needs and frequent version upgrades

• BigCommerce: 32% higher costs on average due to limited native enterprise capabilities

• Adobe Commerce (Magento): 42% higher costs on average due to less flexible pricing

• Salesforce Commerce Cloud: 14% higher costs on average due to less flexible pricing

2. Operational and support costs

This second driver of TCO covers recurring expenses that enterprises incur to keep the platform live and functional. Operational and support costs include technical and human resources needed to maintain and enhance the platform.

Website maintenance costs are crucial here. Successful enterprise websites typically feature attractive design, high functionality, and extensive product catalogs—not to mention security measures to prevent costly breaches. The best platform option will help you save on maintenance costs by including extensive native functionality to cover the above. For example, Shopify boasts the best-converting checkout and lower maintenance costs, saving and making you more money in the long run.

According to the same report mentioned previously, Shopify users reported the lowest operating costs on average, compared to:

• WooCommerce: 41% higher costs on average due to additional infrastructure costs

• BigCommerce: 21% higher costs on average due to limited native enterprise functionality

• Adobe Commerce (Magento): 24% higher costs on average due to Adobe’s complex legacy commerce platform

• Salesforce Commerce Cloud: 6% higher costs on average due Salesforce’s complex legacy platform

3. Implementation costs

Implementation costs: These are the costs associated with rolling out a platform: setting up the system, integrating the platform into existing enterprise applications, and developing the front and back end of the ecommerce website.

According to the same report mentioned earlier, Shopify users reported the lowest implementation and setup costs on average, compared to:

• WooCommerce: 49% higher costs on average

• BigCommerce: 88% higher costs on average

• Adobe Commerce (Magento): 42% higher costs on average

• Salesforce Commerce Cloud: 16% higher costs on average

Not only are our customers enjoying the perks of an adaptable and secure ecommerce platform—they’re also getting the best TCO. Shopify’s TCO is up to 36% better than our competitors and 33% better on average.

How Lull put Shopify’s cost reduction playbook into action

Home furnishing retailer Lull significantly reduced costs after migrating from BigCommerce to Shopify. “Implementing Shopify inspired us to review our org structure, software stack, and operating expenses,” says Mark Engelmann, director of web operations at Lull. “This led to a 25% reduction in software costs and 10%–15% savings on internal tech expenses. Ditching the old inefficiencies, our opex model is leaner and meaner.”

Lull didn’t let complacency get in the way. Suppose they’d stayed the course and never migrated to Shopify. In that case, they’d still be paying those higher fees—without the benefit of single-day product launches and all the other new perks and scale-friendly features they’ve already leveraged.

Strategies for reducing licensing costs

It’s essential to lay out a coherent plan in any cost reduction initiative. Have clear, quantitative goals backed up by the methodology to reach them. Strive to get all departments on board and assure the team is aware of your goals and incentivized to achieve them.

Identify areas where costs can be trimmed immediately, often through automated processes. For instance, software asset management (SAM) tools allow businesses to analyze all the licenses within their tech stack and identify unused or infrequent use. SAM tools can also ensure licenses are current to avoid costly violations.

The most effective plans for licensing cost reduction look beyond budget trimming. Let’s explore a more holistic approach.

Make TCO your North Star

“How do we make more with less?” is a common refrain for a reason.

As inflation concerns permeate the economy and tech debts rise, CTOs face tough change management decisions. Many tech companies are slashing vendor spending. And after waves of recent downsizing, many companies don’t possess the workforce to solve the problems in front of them. New initiatives are needed, but the best CTOs make TCO a North Star instead of letting outside trends control company strategy.

With TCO as a guiding principle, companies should invest in fewer, higher-impact tools and platforms while empowering employees to be more proactive. Carefully research what tools and platforms possess the capability to guide you along your TCO plan. This streamlining will allow your developers to become more forward-thinking and central to the company’s goals.

Focus on revenue-generating activities.

Consider what has made your company most successful, and then hone in on it. Push your development team away from maintenance and backlog and toward what generates the most revenue.

Remember, the goal is to optimize productivity rather than to cut spending. Partnering with a complementary ecommerce platform can free up developers tremendously and increase revenue in the long run.

For instance, energy brand Sunology migrated to Shopify during rapid growth in late 2020. The capabilities of WordPress and WooCommerce had grown unsustainable for Sunology CEO and founder Vincent Arrouet: “Every time I needed to change a comma or anything, I had to create specifications, request a quote, wait for the developer to be available.” Shopify’s capabilities facilitated Sunology’s need for specific web templates right away. “Our customized platform was ready in just five days of development.”

Investing in Shopify’s services was also a cost-reduction win for Sunology. “WordPress incurs significant costs in terms of development and project management, which would have eventually exceeded the price of Shopify’s package.”

Decrease risk through partnership.

There’s no need to build your tech from the ground up. The best platform to work with is the one that offers the best tech partners. The best tech partners earn their value with the application programming interfaces (APIs) they offer.

Ecommerce APIs are definitions and protocols for building and integrating application software. That’s a fancy way of saying APIs save your developers a ton of work by implementing much-needed functionalities into your ecommerce site, so you don’t have to make them from scratch. For instance, you could use APIs to build your storefront or integrate with a shipping provider, saving you the head-spinning undertaking of processing orders independently.

Partnering with Shopify’s best-in-class software allows businesses to focus on their core expertise: the product.

We’ve handled 40,000 checkouts per minute with ease. Black Friday-level traffic could obliterate in-house software. Shopify’s capabilities provide peace of mind that products will reach customers during peak sales periods. Using our APIs lets your developers focus on building new features rather than playing catch-up.

Cost reduction management tools

You’ve adopted a TCO-driven approach to cost reduction, and your business has begun to reap the rewards. Sales are up. Scalability has entered the conversation. However, as a company expands, repetitive tasks build up. So do customer expectations. Systems that used to work could even start to buckle under the added pressure.

Ecommerce automation uses technology and software to streamline and automate critical tasks and processes in online retail. As your business scales, ecommerce automation tools can empower your team by taking redundant, time-consuming tasks off their hands.

These tools can automate tasks as simple as printing shipping labels or as complex as offering discount codes for loyal customers at specific times.

Tasks that can be automated include:

• Inventory, orders, and fulfillment
• Scheduled tasks and product releases
• Customer loyalty outreach
• Rules-based pricing discounts
• Customer support

Using ecommerce automation tools is an effective way to enhance TCO. You’ll cut unnecessary expenses while freeing up your team to focus on more strategic ways to push the product forward—while eliminating the risk of human error.

Management tools can also reduce your acquisition costs. Acquisition costs are the amount of money spent to obtain a new customer, taking into account factors like marketing expenses, website development and design, and customer acquisition incentives.

Tools for reducing acquisition costs include:

• Targeted advertising allows businesses to target their ads to specific customers based on criteria like demographics, interests, and behaviors. Targeting tools like Shopify Audiences can help you minimize wasteful ad spend and cut customer acquisition costs by up to 50%.

• Optimized conversion, which delivers on the demand created by targeted advertising. Conversion rate—the percentage of an audience that performs a specified action, often a sale—signals how much value you’re getting from your existing users. Optimizing your checkout page is crucial to your conversion rate. Start by selecting the right ecommerce platform.

The right ecommerce platform is the one with the right tools. The tools are proven to expand businesses without expanding costs.

Shopify Checkout is the world’s best-converting checkout. We commissioned a Big Three management consultancy to compare Shopify to all other major commerce platforms. The verdict? Shopify converts up to 36% better than the competition and by an average of 15%.

How to cut costs—and fuel growth—with Shopify at your side

We help brands focus entirely on their primary differentiators—while using our scaled capabilities for the elements that will boost confidence in your tech stack and accelerate your team’s productivity.

Using TCO as a guide, Shopify can unleash your business’s full potential.

Gartner, Peer Lessons Learned for Digital Commerce Platforms Implementation, By Peer Contributors, 2 February 2024

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