Choosing the right eCommerce platform isn't as simple as picking the solution with the most appealing features and design elements — you need to consider their total cost of ownership (TCO) to make an informed choice. In this article, we'll break down what TCO is, why it matters, and how to calculate it when evaluating eCommerce platforms.
TCO is a financial metric that helps businesses evaluate the true cost of an investment over its entire lifecycle — not just what it costs upfront to get started. When it comes to eCommerce platforms, TCO includes both upfront and ongoing costs associated with selecting, implementing, and maintaining a platform. TCO is intended to be a broad measure rather than an exact formula - the ultimate goal of calculating TCO is to help expose substantial cost differences over time that are worth considering when considering a new technology.
As a rule of thumb, we count five years as a solid timeframe when it comes to calculating TCO.
The TCO of an eCommerce platform can encompass other costs, aspects, and expenses of your business — let’s talk about those a bit more.
Calculating TCO is essential for assessing the return on investment (ROI) of an eCommerce platform. ROI estimates the potential financial impact of a particular investment over time. Only when you determine the TCO for a platform, can you determine if the solution will provide a satisfactory ROI.
When it comes to evaluating eCommerce platforms it is important to ferret out all costs. Some costs that may be easy to miss, include subscription fees, maintenance expenses, and the cost of necessary third-party integrations. TCO done right helps you uncover these your most impactful costs and avoid budget surprises down the road.
TCO provides a data-driven approach to decision-making. Though it might seem obvious, comparing the TCO of different platforms can help you make an informed choice based on concrete financial considerations rather than subjective preferences.
When you need to secure buy-in from leadership or executives for a specific platform, having a well-calculated TCO can strengthen your case. It demonstrates that you've thoroughly considered the financial implications of your decision and saves all parties from budgetary surprises down the road.
Before we delve into the specifics of calculating TCO for eCommerce platforms, let's highlight some common mistakes businesses make when evaluating platforms:
When calculating TCO for eCommerce platforms, it's common to break it down into two categories: initial costs and ongoing costs.
Initial costs cover the expenses associated with acquiring and implementing a new product or solution. These costs may include:
Ongoing costs, also known as operating expenses, encompass recurring fees associated with maintaining the software solution. These include:
Calculating the TCO for eCommerce platforms is a vital step in making an informed decision when evaluating different options. By considering both initial and ongoing costs, as well as ROI, you can ensure that your chosen platform aligns with your business goals and budgetary constraints. Additionally, avoid common evaluation mistakes and use TCO to make a compelling case to executives and stakeholders. Remember, TCO is just one piece of the puzzle — consider all aspects of a platform before making your final decision, and then prepare your site for the replatforming process.