Understanding Ecommerce Costs: How to Calculate Total Cost of Ownership for an Online Store

Many businesses have made the decision to create an online store this year. In fact, shopping online is one of the most popular reasons people use the internet. In 2019, Statista reported that retail ecommerce sales worldwide amounted to $3.53 trillion and online retail revenues are projected to grow to $6.54 trillion in 2022.

But there are costs associated with going online. In this article, we'll take a look at what you should consider before making any decisions and how to calculate costs for your online store.

The actual ecommerce website cost is a large part of the decision-making process. However, you want to ensure you're actually choosing an ecommerce solution that can meet your business needs. Plus, if you outline what you need now, you won't end up paying for anything extra or need to purchase add-ons down the road.

The type of online store you're envisioning is an important factor in the building process. A store that sells products is different than one that sells services. If you're planning to sell products, approximately how many different products or models will you include in your online store? Are you selling to other businesses (B2B) or to consumers (B2C)? Be as specific as you can during this portion of the planning process. Some services or products may have different needs for features in your online store. These needs will help you narrow down the list of ecommerce platforms to consider. For example, will you need a store with multiple languages? Or will you need a store that has separate login capabilities?

Many brick-and-mortar retailers are adding an online store, especially in 2020. Selling products online in addition to having a physical storefront allows small businesses to go global if they wish and/or provides customers an option of buying online and picking up in-store (BOPIS). Either of these options can expand a business' reach, but it's also something you'll want to keep in mind when looking for an ecommerce solution. 

Selling products online also means managing inventory and handling shipping (more on this in a bit). If you've already got an inventory management system that works for you, look for an ecommerce platform that will integrate with it — unless you're willing to use a new solution that's already a part of the platform.

Once you begin researching ecommerce solutions, it's really easy to get sidetracked by all of the different custom design and features options. This is why it's important to nail down your ecommerce development budget ahead of time.

What features do you absolutely need? Which add-ons would be nice to have? Create your list and stick to it so you stay within your budget.

It's time to think about the shipping options you want to offer once your online store opens. What is your capacity to handle shipping needs? Will you outsource shipping or manage it in-house? Will you have global shipping options? It's up to you what you want to offer. Additionally, you'll want to make similar considerations when it comes to the payment options in your online store.

There are many different variables that contribute to the overall cost of building an online store. In general, some ecommerce stores cost a few hundred dollars to set up while others can cost tens of thousands, or even several hundred thousand dollars. 

Here are items that you will have to pay for:

1. Ecommerce software.
2. Domain name.
3. Ecommerce hosting.
4. SSL certificate.
5. Payment processing costs.
6. Store theme and designs.
7. Add-ons and extensions.

Ecommerce solutions range in costs depending on their out-of-box features, the type of software they offer and their level of service. There are several platforms to choose from, and choosing the right one is an important step in opening an ecommerce store. Let's take a look at some of the platforms you might consider.

BigCommerce is a leader in the ecommerce space. The platform is feature-rich, easy to use, and helps businesses get up and running quickly.

BigCommerce has a clean user experience that makes it easy to build beautiful websites even if you have never done it before. Once you’re all set up, BigCommerce is also easy to run through a simple shop page for adding products and managing orders.

Another potential advantage of BigCommerce from a backend user standpoint is its headless offerings. BigCommerce has several pre-built plug-ins to frontend content management systems (CMS) and DXP systems like WordPress, Bloomreach, Drupal and more. This means if you’re already using one of these options to run your website, you can connect BigCommerce on the backend and continue using the system you already know well on the frontend.

BigCommerce is a software-as-a-service (SaaS) provider, which means you are essentially renting the software and the hosting from them. SaaS platforms automatically make updates for you, so you always have the latest version without worrying about maintenance.

SaaS platforms can provide a high level of performance, so you don’t have to worry about changing hosting providers as your business scales up. It’s all included in your monthly fee.

Magento offers on-premise and cloud-hosted options, but many businesses are now also looking toward SaaS models because they provide continuous updates, including security patches.

Magento does not come with training wheels. And there are no on-site developers for you to contact for help building your site. You will need either a developer or a team of developers to build your site, a hosting partner that can host your site, and someone to integrate your tech stack.

Once you’re set up, Magento still has a steep learning curve. Magento’s flexibility can also be a liability for newer users who aren’t able to navigate its complexity without considerable difficulty.

Brands that are just starting out in ecommerce may choose to start out on a Shopify store. More established businesses, brands looking to grow and those with complex needs often choose BigCommerce for its flexibility and freedom of choice.

Shopify was built to satisfy the needs of small businesses that want a user-friendly way to create online shops. With drag-and-drop areas, it's fairly easy to build a site if you've never worked with code. You can get a simple website up and running quickly; however, if you want to add more advanced features, you will need to add additional apps or custom coding.

Your domain name will be an annual cost unless you're able to pay for a few years upfront. Purchasing a domain name typically costs between $2 and $20 per year, according to GoDaddy. The price depends on where you purchase it from and the extension you get, such as .com or .shop. Purchasing from a private seller or through an auction will usually be more expensive.

Once you register a domain name, it's time to find a web host. Solutions such as BigCommerce and Shopify are hosted on the cloud and offer web hosting as part of the subscription. That means you won’t have to hunt for third-party hosting or deal with the challenges of managing it. 

If you want to self-host your ecommerce store, the cost ranges from $80-$730 per month because it depends on how much traffic your store gets, features your website has, and automated services, such as a site backup.

An SSL certificate ranges in price from $20-$70 per year. While this may be one of the least inexpensive parts of your online store, it provides the security over a network that you'll need for customers to visit and shop on your website. Sometimes, search engines use an SSL certificate as a ranking factor, too. Additionally, some hosting solutions offer this as part of their fee, so keep that in mind.

It's easy to overlook the costs associated with payment processing, but they can add up fast. Payment processing costs depend on the type of payments you want to offer during checkout — such as PayPal or various credit cards — the type of currency you'll accept, and regions where you'll be selling. 

You'll pay fees to each payment gateway you want to offer. Here's an example of how it breaks down:

• PayPal: 2.9% + $0.30 for transactions over $10.
• Stripe: 2.9% + $0.30 per transaction.
• Authorize.net – 2.9% + $0.30 per transaction + $25 monthly fee.

This doesn't include any fees that might come from your bank. In reviewing the overall costs for payment processing, WooCommerce and BigCommerce offer the lowest prices in general. They also provide some of the most flexible options for accepting payments.

Part of developing your ecommerce store is creating a unique user experience with website design that reflects your brand and keeps customers coming back. The design of your online store comes with some standard costs.

All of the major ecommerce solutions have ecommerce web design themes you can choose from. Some themes may not cost anything extra than what you're already paying to use the platform, while other themes may range in price from $60-$200 each. 

Stores hosted on BigCommerce have access to a variety of free and premium themes to use. Cornerstone is BigCommerce’s most popular theme, which is optimized for sales and discounts, large catalogs, multi-purpose, and mobile, tablet, & desktop.

No matter how hard you look, there's not an ecommerce solution that's going to have every single thing you need for your online store. This is where add-ons, plugins and extensions come into play, along with their costs.

With BigCommerce, you can select add-ons for free or go with premium options. A premium add-on can range in cost and usually is a subscription pay model. The out-of-the-box functionality of BigCommerce can save merchants roughly $5,800–$30,000+ per year in app subscription costs, compared to Shopify.

Magento add-ons tend to require custom development, which can be pricey.

Magento offers thousands of extensions in its marketplace that range in price from $0 to $15,000.

Similar to BigCommerce, Shopify merchants can access hundreds of free and premium apps and those costs depend on the app itself.

The cost of having a developer build your ecommerce site all depends on the features you need to run a successful ecommerce business. If you're looking for options that are not out-of-the-box, you might consider hiring a professional ecommerce website development agency to create a site for you.

Development agencies can do the following:

• Back-end web development.
• Front-end web design.
• UI/UX design.
• Ecommerce services.
• Mobile app design.
• Digital strategy.
• Custom software development.

Hiring an ecommerce development agency may not be a small price, but they'll get the job done for less than an in-house developer would cost.

Some costs of having an online store are just upfront costs, but others are ongoing, whether they are monthly, annually or per transaction. Most likely, you'll be able to forecast these costs each month or even per year so they don't come as a surprise.

Here's some of the ongoing costs related to ecommerce functionality to consider:

• Data backups. This ensures all of the information stored on your site will be kept safe, no matter what. Without regular data backups, you could lose money and even customers. Costs surrounding data backup usually depend on the size of your site files.
• Inventory management. An online store is going to have some sort of inventory associated with it, along with shipping costs, even if these are handled through a third party.
• Security. In addition to your SSL certificate, you'll want security software to protect your business and its information from outside threats. This is usually a monthly, subscription-based fee.
• Email marketing. Regular communication with potential and current customers can help maintain your revenue stream. Some email marketing solutions may have free plans or a monthly cost, depending on the size of your email contacts list.
• Product marketing. Other digital marketing efforts such as SEO, pay-per-click (PPC) ads, and social media will require a budget of some sort. Product marketing will help increase your brand awareness to direct traffic to your online store.

It's possible to launch an ecommerce site for less than $1,000, depending on the features you need for your business to succeed. Since there are many different aspects of an online store, you can pick and choose exactly what you need and only pay for those items.

When you do the work upfront, you won't be unpleasantly surprised at the initial price tags or the ongoing costs. Putting your business online provides great potential to improve your reach and increase sales. Make the calculations now and decide if it's worth the investment for your business.