The rapid growth of eCommerce and online shopping has made it immensely lucrative for businesses and brands across all niches. By 2021, it is expected that there will be more than 2.14 billion online shoppers worldwide. There are an estimated 24 million eCommerce websites currently available, leaving plenty of scope for new entrants to the market.
Launching an eCommerce website has become easier than ever before, with the aid of dedicated platforms such as Magento. As there is a healthy amount of competition amongst online sellers, having the best eCommerce platform possible can significantly boost your chances of success.
For any venture, understanding the costs involved is an important component, so you can budget accordingly. These costs involve a lot more than basic installation and subscription expenses. Whether you are considering starting a new eCommerce website on Magento, or migrating from another platform, knowing the costs can help you plan for success.
What is TCO?
Total cost of ownership (TCO) is an accurate view of the overall associated expenses with a product throughout its lifetime This comprises of installation, running, and maintenance costs. For an eCommerce platform the TCO includes hosting, licensing, platform costs, extensions, third-party apps and services, design, development, upgrades and support.
The TCO in eCommerce varies depending upon the platform used and the capacity for growth. The subscription charges for eCommerce platforms typically increases with the growth of the business. The TCO for an eCommerce site can be broadly classified into the following categories:
Each software provider will have its system of charging for services supported. This can be in the form of a one-time licensing fee or recurring subscription charge. Certain open-source eCommerce platforms, for example Magento Open Source, have the basic software available for free. Setting up an eCommerce site is never free, as development and launching costs are involved, even with free software.
The resource costs refer to the resources you would require for the eCommerce site. This includes utilities, equipment and qualified developers needed to launch and maintain the platform. With the trend of capable development agencies that handle all the eCommerce installation and maintenance needs, fewer businesses are choosing to hire in-house developers. Regardless of in-house or outsourcing models, the cost of resources cannot be avoided.
An eCommerce platform involves a considerable time investment, since it takes time to setup, launch and bring results. When you choose one eCommerce platform, the potential losses of not choosing the other platforms or not taking any action is the opportunity cost. Therefore, it is vital to choose the best eCommerce platform available to minimise the opportunity costs. A platform with negligeable downtime and full support for scalable growth is ideal.
Factors Influencing eCommerce TCO
For an eCommerce website, there are several factors that will influence the TCO. Based on the particular website, your goals and the features you want to incorporate, the costs can change. Here are the top influencing factors for eCommerce TCO:
- Licensing: Software for eCommerce is available as free open source code, for a recurring subscription fee, or an initial licencing amount. Based on the licensing model used, there will be an impact on the TCO.
- Hosting: Any eCommerce website will require hosting. There are several options available, and some eCommerce software providers also have hosting options. This is a regular expense that will be a part of the TCO.
- Layout and Design: Modern technology has made it possible for an eCommerce website to be as simple or as elaborate as you want. Customised layouts and unique themes are possible but will add on to the TCO, especially if you want to regularly change the appearance.
- Functionalities: Based on the eCommerce platform and the edition used, there will be a range of in-built and additional features and functionalities. Integrating extra features and third-party applications adds on to the TCO, both at the time of installation and in some cases, recurring subscription fees.
- Maintenance and Support: For a smoothly functioning eCommerce site working at optimal levels, maintenance and support is required. This can be through in-house support staff, or outsourced to a development company. By having help on hand, any technical issues can be instantly solved, with minimum downtime.
Profits and Magento eCommerce TCO
The total cost of ownership should be considered against the potential profit you stand to make. By investing in a good quality Magento eCommerce platform, you can easily run a successful eCommerce site, bringing in significant profits. Focussing excessively on maintaining low costs without allocating for a good quality eCommerce platform can be disastrous. While you would get low set up and operation costs, if you are not able to draw in customers you will miss out on profit.
There are several components of having a successful eCommerce business. Good quality products and a unique idea is the first step only. Without a top-notch eCommerce platform with adequate features and marketing capabilities, you can lose out on all the potential of your business. Accordingly, when you consider the total cost of ownership of Magento eCommerce, also think about the potential it offers you and your business.
Magento Open Source Vs Commerce Edition
Magento offers two distinct eCommerce platforms: the Magento Open Source and Magento Commerce. While the Open Source edition is free to download, Magento Commerce is available on a paid basis. Magento Open Source comes with basic features, whereas the Commerce Edition has more advanced in-built features.
Here are the broad differences between Magento Open Source and Magento Commerce:
All the features offered by Magento Open Source are also included with Magento Commerce, along with extra exclusive features. Both editions include mobile optimised shopping, global selling support, catalogue management, extended functionality through the App Marketplace and integrated checkout, payment and shipping.
Magento Commerce additional features include instant purchases for faster checkouts, and a high-quality search box. There is also a business intelligence dashboard with extensive reporting tools and more than 100 ready-to-use reports that are immensely helpful for business growth. Furthermore, Magento Commerce offers easy add functionality for B2B sales. By upgrading to the Magento Commerce Pro plan, you gain access to advanced B2B capabilities such as custom catalogues, company accounts, approval workflows and quoting.
Advanced Marketing and Merchandising
Magento Commerce has several inbuilt tools for advanced marketing and merchandising. These include content staging and preview, customer loyalty tools, promotions based on segments, drag and drop page builder, email reminders, and visual merchandising. Some of these features can be used in Magento Open Source, but only by using third-party integrations at an additional cost ad limited functionality.
Factors Influencing the TCO of Magento Open Source Vs Commerce Edition
There are other factors influencing the TCO of the two Magento eCommerce platforms, including the following:
- Licensing Fees: There is no licensing fee or recurring cost for Magento Open Source. It is available free for download and comes with basic eCommerce features. In comparison, Magento Commerce has a standard licensing fee to be paid on a subscription basis. Typically, the subscription fee will increase depending on the GMV (gross merchandise sales volume) of a business.
- Development Costs: Both Open Source and Commerce editions are developer-friendly, flexible and come with access to the code. However, the Commerce edition is equipped with more in-built features, simplifying the development process. In Open Source, the development costs are higher since there are fewer in-built features.
- Cloud Services: On-premise infrastructure is steadily being replaced with the Cloud, which offers greater support and flexibility. Although both Open Source and Commerce editions have Cloud compatibility, only the Magento Commerce Cloud has built-in Cloud services. Magento Commerce Cloud is hosted on AWS Cloud, providing secure hosting, minimal downtime with a managed and automated hosting platform. This reduces additional costs and efforts to manage Cloud service providers as would be required with Magento Open Source. Magento Commerce also has global availability, reliable uptime, fast page loading, performance monitoring and PCI compliance.
- Magento Support: In case there are any problems or concerns, support is vital. For the Open Source, there is no specified Magento support, instead there are community forums available to answer queries. On the other hand, Magento Commerce has dedicated support available to resolve any arising issues quickly. With Magento Commerce, there is a dedicated account manager, 24/7 technical support with a real person, and access to express solutions.
- Tools and Plugins: Magento Commerce has greater access to a variety of tools, plugins and third-party apps. Therefore, the costs of integration and using additional tools is minimal. Integrating extra tools, third-party apps and features on Magento Open Source has a higher TCO, including for the development, installation and even subscription costs in some cases.
- Vendor Management: The overall vendor management costs are higher for Magento Open Source as compared to the Commerce edition. The costs further increase if there are multiple vendors, as that requires additional infrastructural support. Supporting multiple vendors is less expensive with Magento Commerce, as there are dedicated tools for vendor management.
Overall, while Magento Open Source is available for free, the development, maintenance, and support costs are higher, especially for a more complex eCommerce site. Magento Commerce has a subscription cost, but all the additional features are available at a significantly lower cost. While the development costs may still be high, apart from the subscription fees the overall operating costs for Magento Commerce are lower.
How to Lower Magento TCO
A low total cost of ownership, without sacrificing any important features or functionalities, is ideal. Reducing your overall expenses on the eCommerce platform helps boost your profits.
- Choose a Suitable Plan: Magento Commerce has two primary plans: the Starter Plan and the Pro Plan. By choosing a suitable plan for your Magento platform you can ensure that you are getting the best costs for the services you need. The Starter Plan, for example, is suited for small B2C merchants, while the Pro Plan is ideal for B2B or established B2C merchants expecting frequent surges in traffic. While you can always change your plan and upgrade, opting for a suitable plan can reduce initial costs, affecting your TCO.
- Regular Updates: By regularly updating Magento software, you can ensure that you are offering customers the best facilities, optimum security, and fast website performance. Upgrades proactively improve eCommerce site performance without waiting for problems to come up.
- Long Term Goals: From the beginning itself, have a clear vision of the long-term goals for your eCommerce site. At least consider where you imagine the website to be in 5 years. Depending upon the features and scalability required during this period, you can setup a suitable Magento eCommerce platform, requiring minimal infrastructural changes.
- Quality Developers: Creating an amazing Magento eCommerce website requires developers. Opting for low-cost developers can restrict the growth of your website. Investing in quality developers helps you in lowering TCO in the long-term, by requiring fewer changes and better results.
Choosing a Developer
To explore the full potential of a Magento Commerce site, you need to have capable developers. There is immense personalisation potential with Magento, and with the right developers, your eCommerce site can be customised to give life to your vision. Although you can hire in-house developers, a Magento certified solutions provider or Magento partner will lower your TCO, help with maintenance, and create the perfect eCommerce site.
Whether you are launching a new eCommerce site, or migrating from an existing website, a professional Magento solutions partner can match your needs in a cost-effective manner. A Magento solution specialist is recognised and has certified developers on staff that have experience and knowledge particularly for Magento.
When choosing a developer, consider the following aspects:
- Are they recognised?
- How many certified developers are on staff?
- How much experience do they have?
- Can they meet your requirements?
- Have they worked in your niche?
- What is a typical timeline?
- What maintenance services are offered?
- What are their success stories and case studies?
Using a reliable development company streamlines the installation, operations, and maintenance of the eCommerce platform. As a result, you can focus on core business goals and activities without worrying about the technicalities of the eCommerce site.
An eCommerce website involves a considerable amount of financial investment, and while it has the potential of bringing in great profits, understanding the total cost of ownership is useful to budget effectively. Magento is one of the leading eCommerce platforms available in the market today, used by innumerable businesses worldwide. With Magento and capable developers, you can create an excellent eCommerce site with all the latest features. For a Magento Commerce site, the TCO includes the initial development of the site, ongoing subscription costs, occasional updates, and maintenance and support.
Our team of Magento designers and developers here at 18th Digitech can help bring to life your vision for your eCommerce site. Reach out to us to discuss your needs, and to develop a sound Magento strategy.