A technique widely known but rarely used is call the Total Cost of Ownership
Two main decision criteria when upgrading or selecting an eCommerce platform are Total Cost of Ownership (TCO) and Return on Investment (ROI).
Total cost of ownership (TCO) is a financial estimate that helps determine direct and indirect costs of a product or system. TCO goes beyond the initial purchase price or implementation cost to consider the full range of costs over a much longer period usually 3 – 5 years.
Return on investment (ROI) is the profit & loss ratio shown as a percentage increase or decrease in the value of the initial investment.
In order to make a decision, the TCO for each potential consideration must be understood along with the potential ROI. The future costs and returns need to be considered for a longer period of time so it’s worth exploring the following scenarios:
- Stick with the existing platform and add new features from 3rd party vendors
- Build a solution using open source technologies
- Hire a team internally to build a bespoke solution
- Choose a large vendor and be just like the others
- Choose a small vendor that will pay closer attention to your needs and align to your business goals and objectives
The purpose of TCO is to provide a complete scope of costs including those for technology, processes and people.
Given that costs for an eCommerce platform include a great deal more than just the purchase price, one good method for TCO calculations is to be meticulous about collecting all the appropriate and associated costs for the project.
Some are frequently overlooked but could differ substantially between your options.
Tangible costs, not a complete list but a good start
- Software license costs
- Annual support fees
- Subscription fees
- Operating Costs
- IT staff
Intangible costs and benefits. Not a complete list but a good start:
- Improvements in efficiency
- Improvements in effectiveness
- Improvements in conversion rate, basket value, life time value, etc
- Increase in sales
- Reduction in stock
- Drop shipping
- Cost savings
- Strengthening customer loyalty
- Increasing brand recognition
- Relationship with supplier
I will be producing a white paper with a guide retailers can use to calculate the TCO for their re-platforming projects, however if you would like to discuss anything further please do not hesitate to make contact.