Calculating the Total Cost of Ecommerce Ownership

Switching or upgrading your ecommerce platform can be a daunting process with unforeseen costs and delays. There are many moving pieces to your commerce infrastructure, making it difficult to prepare an apples-to-apples cost comparison for different solutions – let alone your legacy system. So why change? Chances are that growth is the culprit, and your current system is not able to keep up with demand or is preventing your brand from reaching its full potential.

As brands grow, the cost and complexity of consistently delivering positive customer experiences increases exponentially.

There is no limit to the number of sales that your ecommerce store can process, but there is a limit to the number of orders and transactions your team can realistically manage.  A sudden spike in demand not only wreaks havoc on your resources, but also can result in a wave of negative customer sentiment if orders aren’t fulfilled accurately and on time.

For sub-million dollar brands, typical transaction volume is low enough (around 100 orders at an average order value (AOV) of $25 per day) that a small team can perform everything from the sourcing and marketing to fulfillment and customer service. Many successful entrepreneurs claim that the hardest part of growing a business is going from $1MM to $5MM. Costs escalate more quickly than revenues, transaction volume is more volatile, and increasingly sophisticated technology is required for ecommerce and online marketing. Investing in staffing and technology before achieving revenues puts pressure on finances by tying up cash flow in infrastructure instead of products and marketing. On the other hand, an ecommerce solution that doesn’t allow the business to scale will result in unfulfilled orders and revenue, and potentially damage an emerging brand.

In our new strategy guide, “How to calculate the total cost of your ecommerce system,” we look at 7 different cost centers: ecommerce technology, financial transactions, server and hosting fees, inventory, fulfillment, shipping and management.  Savvy business owners monitor their time investment to execute brilliantly, so the final section explores the opportunity cost of managing all of the moving pieces of your ecommerce ecosystem.

Investing in an upgrade to your ecommerce system is a critical step toward achieving scalable growth for your brand. Taking a disciplined approach to mapping costs allows you to maintain control of the process and avoid “hidden costs” while building a successful and robust ecommerce solution.