Calculate the Total Cost of Ownership (TCO) for your Shopify store by Bob Rockland

Are you new to the concept of TCO? Let’s give you a quick introduction: a TCO calculation gives you an overview of the costs of implementing and maintaining an e-commerce platform over a given period of time – typically 3 to 5 years. It includes all costs involved in running your online store: building it, using it, maintaining it, and scaling it.

For e-commerce brands considering a migration to another platform, knowing the TCO of various platforms and being able to compare them on cost is necessary to make an informed decision. A good TCO calculation will also reveal ‘hidden’ costs, like third-party apps, payment transaction fees and other things you could overlook when assessing a platform.

A TCO calculation for e-commerce platforms consists roughly of two cost categories: the cost of the initial build + the cost of day-to-day operation and maintenance after that.

1. Cost of initial build

• Design

• Development of your online store

• Development of integrations (PIM, ERP, WMS) and custom-built features like configurators

• Any one-off fees paid to the platform, third-party apps and extensions 

• The cost of setting up hosting, servers and other hardware (such as POS) needed to run your store (only if you are not on SaaS)
  
  

2. Recurring platform costs

• Platform fees (e.g. Shopify Plus fee)

• Payment processing fees (e.g. Mollie, Shopify Payments)

• App fees (e.g. Klaviyo, Gorgias)

• Integrations fees (e.g. PIM, ERP, WMS)

• Future feature development & retainers with your development agency

• Hosting (only for non-SaaS platforms)

• Platform upgrades and maintenance (only for non-SaaS platforms)

Calculating costs: Open source VS SaaS

When you calculate the TCO for non-SaaS platforms (such as Adobe Commerce, Magento, Shopware and WooCommerce) you will have to include several things that are absent from the TCO calculation for SaaS platforms like Shopify: 

• Setting up hosting and servers (including the cost of backup servers)
• Hosting fees
• Platform upgrades and updates, security updates, and platform maintenance
• The cost of your DevOps team (in-house or agency) needed for server management
• The cost of scaling issues, e.g. managing expected (BFCM) and unexpected sales peaks
• The cost of troubleshooting and crash management
• The cost of any overhead to do with platform support (any unexpected errors you need developers for)
• If you want to get the complete picture, you can also factor in the estimated cost of missed revenue due to crashes and errors 
  
  

Including payment transaction fees in your TCO

With any platform, SaaS or non-SaaS, the bulk of your operating costs will be coupled to your revenue - in the form of revenue sharing (in the case of Shopify’s subscription model) and, most importantly, the transaction fees charged by your Payment Service Provider (PSP). This means that, with the exact same platform setup, the TCO for a brand with 5 million yearly revenue will be lower than the TCO of a brand doing 50 million a year. 

It also means that it pays off to pay close attention to how you set up your transactions. Most payment methods charge a fee, for instance a credit card rate (usually consisting of a small percentage plus a set amount), which can differ between PSP’s. On top of that your PSP will also charge a transaction fee for the use of their service. When you’re on Shopify Plus, for example, this gives you the following options:

1. Payment Service Providers: If you opt for a third-party PSP like Mollie, Shopify charges an additional platform fee of 0,15% (Shopify Plus) or 0,5% (Shopify Advanced) for every transaction made via that PSP. Still, using a third-party PSP can be interesting for your business if you have a lot of negotiation power and can broker a nice deal with your PSP. Often, Shopify Payments rates are higher than those of other PSPs - which is another reason to keep an eye on your TCO calculation.
   
   

2. Shopify Payments: The rates per payment method that Shopify Payments charges depend on your Shopify plan (Basic, Advanced or Plus): the higher the plan, the lower the rates charged for the use of creditcards, iDeal and other payment methods. If you use Shopify Payments, Shopify will not charge you an additional platform fee (as you would have if you use an external PSP: see above).

Over the last 6 years, Code launched +/- 250 brands in the Benelux, DACH, UK and Nordics on Shopify. The majority of these brands mention Shopify’s lower TCO as a core reason to switch platforms, alongside performance and functionality. 

→ BURNHARD (Shopware 5)
→ Le Nouveau Chef (Shopware 6)
→ namuk (Magento)
→ Trimtex (Salesforce Commerce Cloud)

Here’s an overview of reasons why Shopify costs are lower than most commonly used E-Commerce platforms: 

1. No hosting and security costs: As Shopify is a hosted SaaS solution, hosting costs are included (no headaches to manage and maintain servers) and Shopify takes care of security compliance, SSL certificates, and data protection.
   
   
2. Scalability: Shopify (Plus) allows for easy scalability, enabling store owners to expand their businesses without significant increases in cost or complexity. This is particularly true with Shopify Plus, which is designed for high-volume merchants.
   
   
3. Fast Time-To-Market: Working with a Shopify theme allows you to develop fast and cost-efficient. At Code, we built all our shops on our own Code Base Theme, containing all our best practices - which is even faster and more cost-efficient.
   
   
4. Less need for custom code: Shopify offers many built-in functions and its extensive app ecosystem allows you to add store functionality without the need for custom development.
   
   
5. Content management: The ease of content management on Shopify reduces the time and resources required to maintain your website, including managing multiple international stores.
   
   
6. Updates & Maintenance: Shopify automatically rolls out updates and takes care of maintenance, meaning you will never face an End of Life (EOL) or forced security update.
   
   
7. Internationalization: Shopify’s options for multi-language / multi-currency stores make it cost-effective to reach global markets.