Many costs are associated with developing a new ecommerce site or migrating from an antiquated setup to an upgraded version. And unless you work in the thick of ecommerce development every day, you likely don't know what questions to ask to ensure you’re getting the full picture.
This article explains what your typical expenses will look like and makes a few suggestions about how to approach budgeting for this undertaking.
Open Source vs. SaaS: A Comparison of Costs
You need to decide whether you will go with open source or a Software-as-a-Service (SaaS) platform to power your site. The cost of doing business is very different with each model.
An open source ecommerce framework has the expenses front-loaded. You pay for development time and configuration costs, and then the final product is yours to own and manage—license-free.
A SaaS approach is quicker to get live and has lower costs up front. But then you pay an annual license fee and give a percentage of your revenue to the platform with each transaction made.
Start by doing some easy math. Calculate three percent of your average annual sales. With an SaaS approach, if you sell $50 million online each year, you'll pay $1.5 million in revenue share (on top of licensing fees). If that is an acceptable cost of doing business and allows you to “set it and forget it," then SaaS is likely the right way to go for you.
But if you're a business that needs or wants more control of the front- and back-end experiences, you can use that three percent as a starting point to decide how to shape and invest in your online architecture. With open source software, you’d invest this money up front in year one. In years two and beyond, expenses taper down to about 15 percent of this initial investment annually to keep operational.
Complete this exercise in relation to your own revenue and figure out what your working budget would be to get started. If three percent leaves you with peanuts, I’d suggest searching out a DIY platform-first ecommerce tool and seeking the help of an independent contractor to start generating revenue online. Your year-one investment may look closer to 50 percent of your annual online revenue to get where you need to be.
Try to avoid thinking of this as an expense. Instead, think of how much money you’re going to spend to get a return on investment. How long will it take you to earn that ROI? Are these expectations realistic?
How to Budget for an Open Source eCommerce Architecture
Moving from an existing platform (typically SaaS or home-brew) over to a fully open source, headless ecommerce architecture setup incurs costs like:
Planning is the backbone of a successful ecommerce development project. If you don’t spend the time and money to work out that foundational blueprint, you will get a half-assed outcome that will likely cost more than you were initially promised.
On average, the planning processes for building a substantial ecommerce site for businesses that generate $50 million or more in revenue take 10 weeks of work and cost about $50,000.
Planning is the absolute MUST-DO on your list. If you skip it, you may save $50,000, but your project will spend it on the other end trying to figure out who meant what because you flew cheap and blind.
Ask if your proposed agency completes the following activities in their planning phase:
- Visualization / live prototyping
- Conversion planning, persona development, user journeys
- API integration planning, platform and integration reviews and selections
- ERP / product mapping
- Server and dev ops planning, security, performance and scalability planning
If you’re being pitched the above list, and you can see working past examples of blueprints such as these, then you’re spending your money wisely and you have a shot at getting this project right the first time.
TIP: This plan should be detailed enough that you can either take it and build out your new site in its entirety with your on-staff tech team, or take it to ANY agency and have a crystal-clear spec for execution.
Planning is not conceptual. It is a fully operational blueprint that the engineers have stamped and approved. This is a one time cost and the most essential ingredient in your budget.
If you can only afford to get through planning in year one, make it a priority and wait for the next round of capital expenditure funding to implement it.
Designing a new eComm site is the fun part. This phase of the project should be done after planning is fully signed off on. That’s because planning allows ideas to flow and evolve. And changes in functionality dictate front-end experiences.
Your design phase will vary in price depending on what you want to see mocked up versus just built by the team without your input. Set aside $25,000 to $45,000 to make sure your creative phase reflects the quality of your business accurately. This is a one-time cost.
Here are a few tips to ensure that you’re spending your money wisely:
- Beware of agencies that propose mockups for 30 pages within your new ecommerce site. This is a waste, a cash grab, and a sign of an inexperienced development team.
- Limit mockups to the home page, catalog landing page, product details page, and a general content page. However, if you have some funky options in your cart and/or checkout process, design them, too.
- Don’t bother fully mocking up creative designs for responsive options. If you’re dead set on seeing the mobile experience, start with the homepage on phone only and evaluate from there.
- Don’t waste time or money creating full mockups for each page. You can always add more designs as you go, if needed, or designers can provide elements to improve designs on single pages.
- Complete and approve the home page design fully first before moving onto any “internal” templates. You don’t want rework across multiple designs.
- Use a web design agency, not a design agency. There are specifics for designing to web standards that don’t apply to companies that deal in logos, brands, and print work.
Sprinting / Development
Your project team should work with you to break your planning into stories, block these stories into epics, and group these epics into sprints. You’ll then have an idea of how many sprints you’ll need to get live.
Typical costs for sprinting range from $20,000 to $60,000 a month for the lifetime of the build cycle, which is usually six to 12 months. After this investment, you have a feature-rich ecommerce setup to push live. (Remember: These expenses are front-loaded. After this one-time cost, you own the site and don’t have to pay licensing fees or share your revenue).
Sprinting costs depend on velocity. That is, how many bodies can we afford to put on this development until the sprints are done? If you have $20,000 a month to spend for six months, you’ll get through $120,000 worth of programming or about 600 hours (give or take per agency).
That’s a decent amount of programming time for a version one go-live. You can alter the velocity, or speed with which you move, by altering your spend. After you get to that first launch, you may have the option to taper down resourcing (i.e., output) and slow spending over the following months.
Additional Features or Ongoing Support
Your site is not a static business channel. You’ll need to budget for continued rollout of new ideas, features, integrations, and changes. We often work with companies to train an in-house developer and take the agency expense out. With an open architecture and open source ecommerce setup, the ongoing costs are fully in your control.
Plan out your monthly spend over 12 months to figure out what’s realistic to your ROI, and if you should start right away or take a break.
TIP: Budget for at least a year of ongoing expenses at whatever rate you deem suitable if you want to get a little consulting, training, advice, or coding from some experts. Just be sure to align your expectations of output with your willingness to spend.
Look past your site to see the full picture. What else does it need or plug into that has an annual contract? Account for these costs, too. A few typical additional expenses include:
- Server maintenance, security, updates and monitoring
- Accounting software
- ERP software / PIM
- CRM software
- 3PL software (shipping, warehousing, labeling)
- Programmers on staff
- CSRs on staff
- Training and documentation
Your website is not an expense; it's a revenue channel that needs to be flexible and well architected. A substantial investment will be needed to compete online, so make sure you understand the costs involved.
If you don’t know where to start, chat with a consultant to see if your math lines up with your goals, and then take this information to your internal team. You have options, and they should be clearly laid out for you up front, not presented to you with an invoice when you’re well into development with an agency’s team.
Inform yourself on the process, not on the programming, and you’ll be in a better position to evaluate the best path forward.