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An ecommerce replatforming guide
Total Cost of Ownership (TCO) is an important factor in evaluating ecommerce cost models. It defines the full cost impact of replatforming, not just the most obvious and visible elements like development and licensing.
Don’t fall into the trap of making your project investment decision based only on basic build, support & maintenance costs. This ignores many potential cost impacts that will be a nasty surprise later down the line (and for which you won’t have budgeted, resulting in a lack of funds or an irate Finance team).
Take the time and effort to think through the cost model for the platforms you are considering in detail. Involve your finance team and ensure you build contingency into the plan because it’s common for incurred costs to be higher than those budgeted, often for valid reasons.
The good news is you can follow my structured process to build your replatforming TCO model, minimising the risk of underestimating the financial impact on your organisation.
There are four cost streams I focus on:
- Project Management – what does it cost to run a project team to deliver the project on time and to budget? e.g. a Project Manager. This excludes business stakeholders – see ‘Internal Resource’.
- Project Build – what does it cost to create functional specifications and for the development team to then build the new platform based on them?
- Support & Maintenance – once live, what does it cost to maintain the application and ensure it performs effectively?
- Internal Resource – how much time and effort is required from business stakeholders to ensure the project is delivered on time and according to scope?
Please note that within each stream you need to include the cost of external resource e.g. freelancers and agencies to whom fees are payable based on project inputs or deliverables.
I explore each of these in more detail below.
Project management costs
Ecommerce replatforming projects are complex, which means project management discipline is required regardless of project size. The bigger the project and the more complex the organisation, the wider the range of skills and resource required.
At enterprise level, this often evolves from a project into a programme, consisting of multiple smaller projects overseen by a Programme Director. In this case, there is more dedicated project resource and the cost of this time needs to be defined.
It helps to treat the cost & effort of project management as a separate cost line; sometimes this cost is allocated to a separate budget.
Examples of costs incurred for project management:
- Salary costs for project managers and other resources needed in the PMO (Project Management Office).
- License fees for project management tools g. Sharepoint, JIRA, Basecamp etc.
- Contract fees for freelancers/consultants recruited to help create the project plan and deliver the project g. Ecommerce Consultant supporting the business stakeholders on the project team.
Don’t forget that project management costs kick in before any development starts. You need to consider the time and effort that goes into vendor and SI partner selection, the phases preceding development.
If you would like to learn more about the process for vendor and SI partner selection, watch my video masterclass series (learning time: 3-4 minutes):
Project build costs
As soon as you’ve signed contracts with your platform and SI partner, you will start incurring costs when the build process begins. Before any code has been written, there are still costs that will start to accrue – development environment set-up for example. Ensure you ask your prospective partners what costs are billable, at what frequency and rate, what’s billable in advance vs. in arrears.
Don’t forget to include a contingency cost in your budget. Complex projects often reveal surprises that add complexity and therefore cost. Rigid budgets force organisations into unnecessary compromises e.g. descoping functionality to remain within budget. With an approved contingency, it’s easier to protect scope whilst resolving ‘unknown unknowns’.
Use the expandable sections below for an explanation of typical costs incurred for project build.
Cost of running detailed workshops to translate a project scoping document into a detailed functional specification and user stories.
- Get this defined in a separate LoI (Letter of Intent) to the main agreement
- Ensure there is a clear exit clause if you’re not satisfied during/after Discovery
- Ensure the estimate includes all required resources (Solution Architect, Project Manager, Business Analyst etc.)
- Ensure the estimate includes any cost liability for travel & accommodation
- Ensure it has a clearly defined set of workshops and topics so there are no gaps
- Ensure there is a target start and end date, and that no further costs are payable until the outputs are signed off
- Ensure your technical lead and business stakeholders have reviewed and approved the functional specification
Anywhere from £2,000 – £5,000 (for very simple, small project) up to £50,000+ for complex enterprise projects.
Fees payable to the development partner to manage the build, testing & release of the initial launch based on an agreed scope.
- Define a concise project scope in terms of key deliverables and functional/non-functional requirements
- Ensure a formal cost proposal is signed off, with the deliverables clearly defined
- Ensure there are no additional costs for bug fixing and new site stabilisation after launch
- Ensure it’s clear what would incur additional cost
- Get your development partner to confirm the day rate costs for each resource for any additions or changes to scope
- Ensure the cost proposal is structured to show the different types of cost incurred, not just a project total
- Ensure the cost proposal is supported by a resource estimation aligned with your scope
- Ensure that any costs payable to sub-contractors are clearly defined
Anywhere from £10,000 (for very simple, small project) up to £1,000,000+ for complex enterprise projects.
Fees payable to vendors for being able to access and use the chosen ecommerce platform (typically payable annually in advance).
- Find out how the vendor structures their license fee – there are multiple models:
- Revenue share (GMV %) e.g. Shopify Plus, Salesforce
- Tiered based on GMV threshold e.g. Magento 2
- Tiered based on pageviews/server hits e.g. Episerver
- Find out when the license is payable and how often
- Check if there are recurring annual payments
- Check what the notice period is and cost of exit
- Flow license costs year-on-year based on your business growth plans (it may seem cheap now but what about in 3 years?)
- Check what restrictions and entitlements that are in the licensing service agreement
- Check if there is any cost impact to using the license on your specific domain set-up e.g. multiple domains, sub-domains etc.
- Use the standard rate card for the TCO model comparison (some are publicly available)
Negotiate always! You can get discounts of up to 25% off the rate card depending on when you’re signing (tip: target the end of Q4 when sales teams are desperate to bank revenue before year end!).
Some platform versions are free, others start from a few £thousand upwards depending on GMV sales and pageviews. For example. Magento 2 Enterprise Cloud for $25m – $50m GMV is $190,000 per annum (rate card).
Fees payable to the hosting provider to provide a secure hosting environment for the new platform (for SaaS solutions like Shopify Plus and Salesforce, this is included in the license fee).
- Check if hosting provision is included with the license fee g. Salesforce does this
- If not, ensure you have a clear cost proposal for your hosting showing how this scales over time
- Get a detailed definition of the hosting service level agreement
- Ensure hosting processes are clearly documented g. disaster recovery
- Ensure you have a technical specification for the hosting environment and SLA
- Ensure your technical compliance owner has reviewed and approved the hosting specification
- Ensure there is a clear explanation of when additional hosting fees are incurred & what the fee schedule is
- Ensure the hosting service proposed satisfies your business growth plans in terms of traffic size and peaks
- Check if there are clauses in the agreement that relate to additional costs and assess the potential impact
This can range from £hundreds to £10,000+ per month depending on service level requirements and size of business.
Fees payable for tools & technology required to deliver the in-scope functionality where it’s not available natively in the platform e.g. postcode validation and verification tool like Loqate.
- Audit your platform vs. your requirements – identify capabilities you need 3rd party apps & plugins to satisfy
- Identify a fit for purpose solution and get a cost estimate (easy with platforms like Shopify and Magento as there is an extensive marketplace to choose from)
- Ask for upfront installation & license fees and ongoing support & maintenance fees
- Talk to the app owner about how the cost scales as your business grows – don’t assume it’s a static cost
This can range from zero to several £thousand per month.
Fees payable to 3rd parties to train the business on how to use the new platform, including provision of relevant documentation.
- Review your vendor/SI partner’s standard training programme
- Ensure your development team is trained adequately on use of developer tools
- Ensure ecommerce admins are trained extensively on using the admin systems
- Ensure there is professional documentation that your teams can refer back to
For a small project it will be around £2,000 – £3,000. For larger projects, expect £15,000+ depending on the number of stakeholders to put through training.
Emergency fund that’s held aside to cover unforeseen requirements and issues, such as development over spend or scope creep (I usually recommend 15-20% of the planned build cost).
- Add at least 10% contingency to your project build costs (I recommend 15%)
- Ask your SI partner for evidence of delivery to budget
- Ask for examples where projects have exceeded budget and an explanation of what caused this
- Ensure there is a clear escalation process for evaluating project overspill to decide when it’s a valid use case for the contingency fund
Support & maintenance costs
Technology isn’t perfect, neither are humans. The wonderful new site you’ve built needs constant nurturing to keep it performant and react to inevitable problems. There are many common reasons why websites develop bugs and issues, for example:
- An existing feature isn’t compatible with a new browser version.
- When a new feature is released, it impacts existing code.
- A business stakeholder makes an admin change which breaks the code e.g. adds invalid html via the CMS.
- A plugin stops working and breaks a website process e.g. postcode lookup in the checkout.
This is where your support & maintenance service agreement comes in. This ensures you have a resource allocation to continuously monitor website performance, detect issues proactively and resolve them by prioritizing those with the biggest impact on the business. For example, a bug that breaks the checkout takes precedence over a bug that stops an email sign-up form from working for iOS visitors.
There are different support costs to consider:
- Critical Application Support:Ensuring the ecommerce application is working so that core features are functioning and accessible to the services that rely on them e.g. the product data feed to marketing channels is working.This includes major and minor application upgrades.
- Hosting support:Ensuring the hosting environment is secure and stable. This includes provisions for scaling to minimise disruption to the website during peak traffic periods. It also includes maintaining, and upgrading where relevant, essential items like firewalls.
- Routine maintenance (presentation layer):Ensuring the front-end website (presentation layer) is accessible across all devices and channels, and is rendering accurately and providing the expected level of user experience e.g. persistent basket is working on all devices and showing accurate content. Routine maintenance is proactive and includes automated site monitoring (using tools like New Relic and Pingdom), scheduled maintenance tasks e.g. database cleaning.
- Issue triage & resolution:Triage is the process of identifying, logging and investigating a new issue to determine the optimal resolution path.It’s reactive to problems, and involves front-line technical support to understand the cause and size of a problem, then work with the client team to agree how to prioritise open tasks based on business impact.
The diagram below will help you understand the difference between application support and routine maintenance of the presentation layer.
A good way to think about it is using the analogy of the human body. If you focus on how you look on the outside (presentation layer) and not your overall health (ecommerce platform), something could go wrong internally (application layer) e.g. heart attack. It’s no good looking great if it kills you (website can’t take orders)!
Equally, if you only maintain your core body (application layer) but ignore the health of external features like your skin (presentation layer), it can adversely impact how you look and feel, and change how people respond to you (visitors abandon as they don’t like the user experience).
Internal resource costs
This is often missing from replatforming cost analysis.
In my experience, it’s because project teams see stakeholder involvement as cost that is already accounted for in salaries and other budgets. However, if you want an accurate view of the cost of your replatforming project, especially when looking at lifetime ROI calculations, you should include the cost of resource (even if it’s being paid from a different budget pot).
Just because a cost is sunk elsewhere doesn’t mean it’s not a cost impact from your project. The business still has to pay for that resource and if it’s allocated to your project, there’s an opportunity cost to consider.
- Dedicated stakeholders who are seconded to work full-time on the project.
- Estimated time required by each stakeholder to attend project calls and meetings.
- Estimated time for stakeholders to provide project deliverables e.g. business process documentation.
- Estimated time for stakeholders to attend training sessions for the new platform.
- Estimated cost for any new employees required to fill skills gaps within your organisation.
How to present your TCO cost model
Make life easier for your finance team; build a simple and effective model in Excel (or a suitable alternative). Complete the following steps:
- Enter your current ecommerce traffic, conversion and revenue KPIs
- Create a vendor cost model shell where each cost line is listed
- Copy & paste this shell for each platform you want to evaluate
- Flow this over 5 years with a 5-year aggregate total
- Set-up formulas to auto-calculate totals
- Plug-in estimated costs as you discover them
- Work with vendors and Sis to plug cost gaps
- Use formulas to calculate the percentage share of GMV that your annual platform cost represents
Estimated time to create the shell: 1 hour.
Figure: example TCO model for ecommerce development, support & maintenance costs.
Please note that you need patience to complete the cost model. It takes time to get realistic costs from vendors, SI partners and 3rd party app providers. For example, the cost model I built for an international fashion brand took 8 weeks from start to finish as there was a lot of time waiting for confirmation from 3rd parties.
Talk to your network; does anyone you know have experience with these platforms? Can they help you input data?
Your take away learning
- Replatforming involves a significant cost commitment for your business
- As well as ensuring the platform satisfies business needs, you must ensure it’s affordable
- It’s risky to make an investment decision based purely only upfront costs
- Ensure you understand the impact of growth on your platform cost model
- Flow costs over a 5-year lifetime and calculate the total cost as a percentage of your forecast GMV
- When comparing multiple platforms, ensure you’re looking at a like-for-like comparison e.g. include the cost of 3rd party apps required to satisfy your functional requirements
- When 3rd parties propose costs, ask for a detailed explanation of how the cost has been calculated and evidence it’s realistic
You can also watch my replatforming masterclass video on creating a TCO model.
Learn more about enterprise ecommerce replatforming by reading my other guides:
- What is replatforming?
- What’s the best ecommerce platform?
- Project management for replatforming projects
- Resourcing your replatforming project
- Understanding and managing risk for replatforming projects
Have a question?
Downloadable replatforming checklist
Our ecommerce replatforming checklist is a step-by-step guide for ecommerce platform vendor selection and implementation agency (systems integrator) RFP process. Available as a detailed step-by-step online guide or via PDF download.
Video Masterclass Series
The perfect companion to this replatforming checklist, watch our free 10-part video tutorial series on ecommerce replatforming. Watch the introduction to learn why your ecommerce teams should put the right level of detail, effort and investment into project planning.
Weekly ecommerce podcast hosted by James Gurd and fellow experienced digital consultant Paul Rogers. Featuring interviews with industry thought leaders and practical advice on improving end-to-end customer experience, discover how to make better technology decisions.