Initial pricing is not the same as total cost of ownership. It’s important to make a TCO assessment based on all the factors: at first glance, an open-source product, which is often essentially free, would appear to be the least expensive; factor in the cost of development and implementation and hosted solutions start to look more affordable.
It’s sensible to divide TCO into two columns: Initial or startup costs, the price you have to pay to get your site set up and ready; and running costs.
Startup Costs include:
- Technical Design
- Functional Design
- Time to Import Products
- Third-party set-up costs for things like payment gateways, email marketing integration, or integration with your financial system
- Training staff and managers
Looked at this way, initial costs can be significantly higher than the purchase cost of the solution itself. Ease of use that reduces training requirements, ready third-party integrations and ‘one-stop’ solutions that bundle a payment system go some way to explaining the popularity of hosted ecommerce solutions.
Running costs include:
- Hosting fees
- Third party system usage fees – the fees for credit card transaction processing, for instance
- Software support fees such as updates, technical support
- Analysis and optimization including SEO, A/B testing onsite and so on
- Marketing and advertising
Many of these recurring costs are associated with self-hosted ecommerce solutions. The price debate is a little more nuanced than ‘self-hosted = pay now, hosted = pay later.’
Typical pricing structures look like this:
Shopify, one of the most scalable ecommerce solutions, begins at $29/month. At this level, you’ll pay 2.4% and a 50¢ charge on every credit card transaction, meaning your $75 order value just became $71.30. At the other extreme, the ‘Unlimited’ plan involves larger basic payments, of $179/month, but you’ll only pay 1.8% plus that same 50¢ charge on credit card transactions. Not worth it to turn $71.30 into $72.10 – but if you make 10k sales a month, it might be worth it to turn $727, 000 revenue into $731, 500 – a $4, 500 difference, based on the same average cart.
Magento’s pricing structure is very different. Shopify’s users are getting a service for their money. Magento’s users are getting an open-source bundle of code. The initial download is free., but individual support can be expensive. Many Magento users rely on the extensive forums instead, which so far still sounds low-cost; but consider that while Magento offers great SEO it doesn’t offer SLA-backed levels of service, and you’ll have to implement and upload all the code yourself or hire someone to do it. Getting off the ground with a range of free themes and easily-available add-ons is relatively easy but requires much more coding knowledge than Shopify. The Enterprise Edition of Magento costs $18, 000 a year – $1500/month – but comes with comprehensive benefits including advanced marketing integrations, persistent carts and built-in security and technical support. The benefits are greater than Shopify but the cost per month is far higher too.
The disparity between Magento’s and Shopify’s top rates draws attention to a final point: part of TCO is revenue. If you have a large ecommerce business, the loss of integrated marketing that could net you 4% more customers is worth much more than a lower dollar-per-month price, and the TCO is then lower for the more expensive option!