Running a business entails a lot of expenses. However, unlike traditional brick-and-mortar stores, online store expenses are slightly nuanced and different.
A lot of people assume that their chosen e-commerce platform cost is perhaps the only major expense. But that is far from reality.
Running an online business includes implementation, operational, and support costs - and each of these is multi-layered. In today’s markets, where competition is high, margins are comparatively low, and customers expect only the best, choosing your best tool kit is of utmost importance.
In this blog, we will take you through the costs of building and maintaining this tool kit, i.e. the total cost of ownership.
What is the total cost of ownership?
The total cost of ownership (TCO) is the complete cost of owning something.
When it comes to the total cost of ownership (TCO) of running Shopify stores, most people just consider the monthly subscription fee. TCO includes everything from the initial setup costs, your Shopify plan fees, apps you use, payment processing charges, ongoing marketing or design expenses, and operational and support costs.
How to calculate the total cost of ownership
There are so many costs that can add up to your total cost of ownership. These can include -
- Gross merchandise value: Annual sales and ROI generated
- E-commerce platform: Monthly subscription fees of the main e-commerce platform you’re currently using
- Current annual recurring e-commerce costs: Recurring platform licensing and third-party/ecommerce stack fees, ongoing operational and support costs
- Platform and e-commerce stack costs (total annual): Recurring costs to the current platform for core services and non-core services, along with costs to third-party application/software providers that support your e-commerce stack
- Platform licensing fees: Amount paid to your platform provider for core functionality (e.g., licensing fees, account fees).
- Projected time frame: The time frame your total cost of ownership should be calculated on (default five years)
- Operating margin: Your organization’s operating margin
Note that every business is different. This means, there is no rule of thumb about what exactly should your TOC include. The basic idea is it should take into account everything your business is spending money on to stay afloat.
You can also use the Shopify total cost of ownership calculator built by the platform to make things easier.
Important elements of the total cost of ownership
There are three main elements that directly impact the total cost of ownership when running a Shopify store -
- Implementation and setup costs
- Platform fees and e-commerce stack costs
- Operational and support costs
1. Implementation and setup costs
This is usually the first and the most expensive cost. You will need upfront investments to get your store up and running.
Most people assume starting an online store with a new platform is just that, but there's more to it than just the platform itself. Knowing these costs upfront helps businesses make smart choices.
Here are a few action items you will need to spend your money on -
- Platform setup fees: Some platforms charge a one-time fee to get you started. This might include some help setting things up.
- Integrations and basic setup: This involves connecting your new platform to your existing systems, like inventory or customer lists. Costs can include hiring programmers to connect the platform and people to manage the project and make sure everything works
2. Platform fees and e-commerce stack costs
E-commerce platforms like Shopify charge money to keep your store up and running. These costs usually follow a subscription model, meaning they’re recurring (either monthly or yearly).
This amount depends on your store size and the plans you choose. There might also be extra costs for features you need that aren't pre-built into the platform.
Let’s take a look at the main platform costs:
- Platform fees: This includes a base fee (monthly or annual) and sometimes extra fees based on things like transactions, stores, or orders.
- Payment processing: Fees for processing payments and moving money between you and your customers.
- Platform support: Some platforms offer extra help for an extra fee. This could include help with things like store maintenance, technical support, or a dedicated account manager.
- Apps and integrations: You might need extra features that aren't included in the base platform. These can be from the platform itself or from other companies. Examples include email marketing, order management, or loyalty programs.
3. Operational and support costs
This is also a recurring expense that you’ll definitely need to ensure your store is functioning smoothly. Here, both technical and human resources are important. These costs include -
- Platform enhancements and applications
- Infrastructure costs
- Platform management
- Platform operations and administration
How to reduce the total cost of ownership
All businesses want to grow their sales and profits. To be able to do that, businesses need to be able to optimize their total cost of ownership - they should be able to minimize their input costs and maximize their output costs.
Let’s look at what can you do to lower your TOC.
The key is to choose an e-commerce platform that handles major complexities for you. The idea is running a store should be as easy as it can get while also reducing your overall costs.
So you need to first define your platform requirements.
Consider the following -
- Built-in features: Look for a platform with a lot of features already included, and how easy they are to use. But make it a point to look at the number of features you need rather than how many features they have in total. The more your team struggles to make features work, the less time they have for other things.
- App marketplace: A good platform will have a marketplace with lots of affordable apps for adding extra features. This is much cheaper than custom development.
- Constant innovation: The platform should be able to meet the growing needs and keep up with trends. This saves you the cost of developing features yourself.
The best way to go about this is to create a small checklist and scribble down your business priorities and requirements. This will give you better direction, and in turn a strategic final decision.
Also read: Top 8 Reasons Why You Should Switch To Shopify
Need help?
Setting up a high-converting store design is no easy task. To build and design an impressive store, you need to work with Shopify design experts who understand what you are looking for and have industry knowledge of the changing trends and consumer preferences. And this can usually be an expensive feat.
Also read: Why Your Shopify Store Design Is Important to Increase Conversion Rates
We help you bring your ideas to life with Shopify web design, development, marketing, and support services from experts while keeping your budget in mind.
Our team of Shopify experts works with Shopify merchants like you to design a store that reflects the personality of your brand and caters to the functionalities you require. Whether you want to revamp your existing design or build a new one from scratch, we will help you create a positive shopping experience on your Shopify store design.
Reach out to us at info@xgentech.net and we’ll help you set up and run your store within your budget.
