Many hidden costs can result in deductions from your profit while running an eCommerce business.

That said, are you caught up by the expenses you never expected to pay, or do you ever wonder what your operations are costing you?

Therefore, the key to the total cost of ownership must be a clear view of the total direct and indirect costs associated with eCommerce platforms and their operation. These will include, for example, software, hardware, maintenance, and personnel costs.

While calculating the total cost of ownership (TCO) might be challenging, your business must avoid surprise costs and maintain smooth, profitable operations.

Here’s a seven-step breakdown on how to calculate TCO in eCommerce so you can be confident that you’re making the best investments for long-term success.

Step 1: Identify All Direct Costs

First, identify all the direct costs involved. These are costs that go directly to setting up and running your eCommerce platform. They include:

• Software Costs: Licensing fees for eCommerce platforms, payment gateways, and other essential software.
• Hardware Costs: Server costs, networking equipment, and other infrastructure.
• Implementation Costs: One-time set-up and customization of the platform costs.
• Transaction Fees: Payment processing and other third-party services charges.

The direct costs are easily documentable and provide information that gives you a solid starting point for ecommerce TCO calculations.

Step 2: Add Indirect Costs

Though often ignored, indirect costs are part and parcel of the TCO calculation process. These costs, even though associated with business operations, are not directly related to any specific eCommerce activities. Major constituents are as follows:

• Maintenance and Support: These involve any costs incurred for updating systems, security patches, and technical support.
• IT Staff Training Costs: Costs incurred to train the employees on the new systems and processes.
• Operational Costs: Utilities, office space, other overheads.
• Personnel Costs: Salaries and benefits for IT staff, customer service reps, and other supporting employees.

Hence, the indirect costs must be integrated into the calculations and sums to assess the TCO appropriately.

Step 3: Integrate Costs

While every e-commerce operation requires integration with many systems, the integration costs may vary considerably. Key integrations include an ERP (Enterprise Resource Planning) system, which smooths the platform’s operation.

Integrating marketing tools will help facilitate campaign management and automation. Thus, it is essential to budget for all integration costs upfront to avoid unbudgeted expenses.

Step 4: Costs of Scale and Infrastructure Calculation

These relative costs differ on a business scale and the chosen solutions, yet they are necessary for the further development of eCommerce businesses. Three main headings under the cost of infrastructure are hardware—servers may need to be upgraded—communication—bandwidth may come under this—and core parts of the website, such as domain registration and any basic security, like SSL certificates, for instance.

Another is the cost of managing people, especially when probably creating more individuals to work on the company’s personnel to deal with the increase in workload and a multitude of customers.

Through proper approximation of these costs, one can develop a business in terms of capacity while providing quality services.

Step 5: Estimating Costs of Security and Compliance

You need to implement the security elements to ensure the eCommerce platforms are secure and compliant against certain attacks and legal violations. Therefore, ensure you include the costs associated with firewalls and other forms of security.

Remember to feature the cost of compliance with business regulatory measures like PCI DSS and the cost of backups and disaster recovery. TCO metrics avert risks and losses that can damage your business by having a good security and compliance policy.

Step 6: Factor in Customer Experience Costs

The sixth step is integrating the product into CRM systems, as customer experience is of great importance in any eCommerce environment. So, every investment in integrating a CRM helps reduce TCO, resulting in increased efficiency in retaining customers and subsequent purchases.

The two critical elements that remain in this regard are in terms of:

User Interface Design

On the website, ensure that CRM systems used create an easy-to-navigate site with clean and organized transitions. That way, you ensure customers have a good experience when making their purchases, thus helping your business retain the clients it acquires.

Customer Support

Integration with CRM helps provide customers with the best possible level of support across all touchpoints. Centralizing customer information ensures that the support teams deal with all customers’ queries more effectively, increasing clients’ satisfaction.

Shipping and Fulfillment

You need to consider the investment costs through order tracking, which is possible using CRM systems. Hence, they provide an avenue to update customers about the progress of their orders, with their shipping and order fulfillment done on time, thereby improving the customers’ experience.

Step 7: Calculating TCO

The last step in arriving at the TCO for your eCommerce is to aggregate all costs from the preceding steps and prepare a summary table listing each cost type and its total.

For example, assuming that the following are the category costs per annum, then:

TCO = Software + Hardware + Marketing + Shipping + Customer Service

TCO = $12,000 + $15,000 + $30,000 + $25,000 + $18,000

TCO = $100,000

However, to ensure consistency of the TCO analysis, all such costs should be aligned back to a common period, usually one year. Do not forget to check the TCO baseline and modify it further by making assumptions about possible changes, such as increasing subscription fees or expansion costs.

Conclusion

By the end of this guide, if one follows it, they will understand the costs involved in the eCommerce space and be in a position to make investments that have a chance of being long-term successes.

That said, all the above-mentioned steps provide the information needed to calculate the cost of running an eCommerce platform more realistically. You will be in a position to avoid further TCOs if you properly understand them.