What is Total Cost of Ownership (TCO)?

What is TCO?

The TCO includes the purchase price of an asset i.e, the cost of buying the platform at your chosen tier, and the recurring licensing or subscription fees to keep the platform in operation. TCO is often calculated over 3-5 years and incorporates all initial and recurring expenses related to the development and maintenance of the eCommerce platform. These also include potential add-ons, extra modules, and third-party integrations.

Why TCO is Crucial to Buying Decisions

In a survey Forrester, 80% of firms confirmed that they require a three to five-year TCO analysis before solution procurement. As a metric TCO should be a key factor in the buying decision. While a platform might be the cheapest purchase price in its category, the TCO in the long run may be more costly than anticipated when compared to a platform that is priced higher but has a lower TCO.

TCO calculations can help businesses evaluate their return on investment (ROI) as well as another underappreciated metric, return on time invested (ROTI).

Here are just a few of metrics to consider when calculating TCO. There are one time set up costs such as:

• Development

• Integrations

• Staffing and training (This includes the cost of hiring and training employees, as well as any ongoing salaries and benefits.)

• Extensions/apps

• Domain name registration

• Templates

• Server configuration

• Integrations

• Email setup

And there are ongoing costs including:

• Infrastructure costs

• Enhancements and applications

• Production and non-production platform management

• Platform operations and administration

• Fixed and variable platform and licensing fees

• Payment processing

• Platform service and support

• Apps, plug-ins, and integrations

• Third-party fees

• Security costs: This includes the cost of implementing and maintaining secure systems to protect customer data and transactions.

• Maintenance costs: This includes the cost of maintaining and updating the website, as well as any necessary hardware and software upgrades.

With 43% of ecommerce solutions having an actual cost of ownership higher than predicted by TCO models, it’s important to keep a buffer when it comes to estimating cost.

A study commissioned by Shopify in 2024 evaluated major platforms in North America, including Shopify, BigCommerce, Salesforce Commerce Cloud, Adobe Commerce (Magento), and WooCommerce. The results show that Shopify’s TCO is on average 33% better than that of its competitors. Shopify seems to have outperformed its competitors on 3 key metrics:

• Platform Fees: On average, Shopify’s platform costs are 23% better than its competitors’.

• Operating Fees: On average, Shopify’s operating costs are 19% better.

• Implementation costs: On average, Shopify’s implementation costs are 33% better.

Shopify vs. WooCommerce

About WooCommerce

WooCommerce is an open-source eCommerce plugin for WordPress. It is designed for small to large-sized online merchants using WordPress. Launched in 2011, the plugin quickly became popular for its simplicity to install and customize and for the market position of the base product as freeware. However, WooCommerce has been historically geared towards small to medium businesses which doesn’t lend well to growth or scale. Open-source platforms like WooCommerce often mean additional infrastructure costs, such as hosting. They require scalable computing and security infrastructure to handle large volumes of web or store traffic and transactions.

TCO of WooCommerce

Even though the WooCommerce plug-in is free but doesn’t come with the built-in features and functionality you get with Shopify. The latter is a closed platform, all-in-one online shop builder; WooCommerce is not. You must have a WordPress site to use WooCommerce. One user commented “WordPress… incurs significant additional costs in terms of development and project management, which would have eventually exceeded the price of the Shopify package” Customers may incur costs to hire WordPress experts or experience other hidden costs due to less-than-ideal customer support

How Shopify Measures Up

According to the study,

• Costs are 57% higher on WooCommerce than on Shopify, on average.

• Shopify’s checkout converts 17% better than WooCommerce

• Shopify respondents indicated the lowest operating costs due to its operational simplicity and reduced developer support needs.

• Shopify is less costly to implement than WooCommerce due to the simplicity of the platform and its developer-friendly back-end system

About BigCommerce

BigCommerce’s platform is multi-tenant SaaS hosted on Google Cloud Platform. BigCommerce also has a channel integration solution from its Feedonomics acquisition in 2021. Headquartered in Austin, BigCommerce has offices in London, Kyiv, San Francisco and Sydney. B2C and B2B companies across 150 countries and numerous industries use BigCommerce.

BigCommerce offers a framework named Stencil which is a native, low-code solution for building storefronts. BigCommerce customers also get access to their no-code page builder. They also offer headless APIs for their customers’ own front ends. BigCommerce has a large number of pre-integrated third-party applications including front-end and back end technologies.

TCO of BigCommerce

While BigCommerce does have pre-integrated third-party applications, if your required applications aren’t in their existing list, you may have to pay more to integrate them and other plug-ins General development investment can be a significant cost

How Shopify Measures Up

According to the study:

• Costs are 45% higher on BigCommerce than on Shopify, on average.

• Shopify’s checkout converts 12% better than BigCommerce,

• 32% higher platform costs on BigCommerce 32% compared to Shopify

• 21% higher operating costs on BigCommerce compared to Shopify

• 88% higher implementation costs on BigCommerce compared to Shopify

Shopify vs. Salesforce Commerce Cloud

About Salesforce Commerce Cloud

Part of the integrated Salesforce Customer Success Platform, Commerce Cloud powers all Salesforce connected apps. Business to consumer (B2C), business to business (B2B) and direct to consumer (D2C) companies can use its e-commerce capabilities. With these three avatars, Salesforce Commerce Cloud provides e-commerce products for all kinds of companies looking to sell online. It also integrates with many Salesforce products and third-party apps so that sellers can deliver connected, unified experiences to help garner customer loyalty. Recently, Salesforce added AI Generative Pre-trained Transformer (GPT) capabilities to Commerce Cloud that make the platform even more flexible and enable sellers to drive more automation, increase sales and adapt quickly to changing customer demands. Sellers can also implement GPT-driven actions to set up and optimize digital storefronts, personalize every customer's shopping experience, and use first-party data to strengthen customer relationships.

TCO of Salesforce Commerce Cloud

Due to the high level of customisation, Salesforce can be complex to implement and configure. It often requires more internal resources or partners to configure and customise for deployment. Salesforce may also have higher implementation costs due to more complex back-end system integrations—for example, with ERPs and financial systems. Maintaining complex legacy platforms such as Salesforce can also require more internal IT resources or partners for ongoing updates and enhancement.

How Shopify Measures Up

According to the study:

• costs are 54% higher on Salesforce Commerce Cloud than on Shopify

• Salesforce has16% higher implementation costs as compared to Shopify

• Salesforce has 4% higher platform costs as compared to Shopify

• Salesforce has 6% higher operating costs as compared to Shopify

This study, commissioned by Shopify, and produced in partnership with a third-party consulting firm, contains case studies of companies that have benefitted greatly from migrating to Shopify. On average, they seem to reduce their TCO of a platform while improving outcomes like conversion, margin percentage and other metrics. Here’s just one example:

“Since migrating from Salesforce Commerce Cloud to Shopify Plus, we’ve reduced our total cost of ownership by 64%. We’re spending less and driving sales more efficiently. It’s the best of both worlds.” Kevin Mogyoros, COO and CFO, MZ Wallace

It’s clear that Shopify has positioned themselves as a strong contender in TCO, far ahead of its competitors, and for this reason, it’s caught our attention. However, this doesn’t mean that replatforming to Shopify is the immediate logical step.

It is still crucial to look at businesses on a case-by-case basis. For instance, recent Forrester Analysis Reports seem to indicate that most companies are not looking into replatforming simply because the time and monetary investment needed, may be better spent extending the functionality of their current platform to better fit their needs.

So, before you take the leap, consider your options carefully. Do a thorough TCO Analysis of your current platform if you haven’t already, as well as an analysis of the platform/s you potentially hope to switch to.

You must only take the plunge if you see a solid business case to prove the need for migration.