When and why to change your ecommerce platform
In the previous edition, we explained what Vintage Ecommerce Syndrome is, and its symptoms in an online store. Today, let's see what we can do to cure it.
In the previous edition, we explained what Vintage Ecommerce Syndrome is. We described some symptoms and their consequences.
Besides those mentioned in the previous post, these others are very common in online stores suffering the syndrome:
The current store technology limits business needs.
New tools or functionalities cannot be easily integrated.
Frictions in the purchase process erode the conversion rate.
Maintenance costs are unpredictable, high (or both).
The platform doesn’t meet necessary security standards.
The platform is not user-friendly for managers or customers.
Given this situation, let's explore the three steps we need to take in order to make good re-platforming decisions:
STEP 1: Economic impact study
First, we study the real operating costs of the current platform, with attention to:
License, infrastructure, hosting, and related service costs.
Costs of catalog management, promotions, and merchandising.
Online store operation costs.
Corrective and evolutionary maintenance costs.
Integration costs for new services and functionalities.
In many of these cases, the simplest thing to measure is the time tasks take. But time always equals cost and can be translated into a table in $. An annual cost can be calculated for each of these five categories.
It’s also important to reflect unforeseen costs historically suffered, to get an average annual cost of these events (emergency actions, unexpected server costs, security issue solutions, etc.).
Let’s not forget the costs associated with potential risks incurred by maintaining current technology: security, unavailability, fraud, reputational risks, to name a few. These can all represent a significant cost and should be included in the calculation, with a weight for their risk of occurrence.
Finally, opportunity costs are estimated: all the good things that cease to happen in our ecommerce due to the decision to maintain the current platform and technology. This is very challenging to estimate but crucial for the analysis. It can be estimated as follows:
Estimation of the benefit that would result from better technical performance and availability. We look at what we’ve lost in sales due to technical issues, outages, and problems; and also estimate what we’d be missing out on due to poor technical performance (which directly impacts abandonment rates).
Estimation of the benefit from a better user experience. This is hard to estimate alone, but we have aggregated data from national ecommerce as a reference. Global performance and sales data provided by technology manufacturers or well-known sector reports can be used. It may seem complicated, but there are refined models for making these calculations based on data shared by thousands of online stores operating in our technology, region, and sector.
It’s enough to get this far in the cost study, although it’s true we could analyze the problems caused by the current ecommerce platform in greater depth. Every problem can be traced to a cost or lost sale (revenue lost, profit lost).
Advanced methods exist for investigating and quantifying these problems, such as the SPIN method, but for solid conclusions, external help is almost certainly needed. Ask me if you’re interested.
Armed with this information, we’d have Step 1 complete: a picture of the total costs of our ecommerce platform and what we’re missing out on by using it. Only then does it make sense to move on to Step 2.
STEP 2: Analysis of Platform Change Costs
A platform change will generate two significant cost milestones:
A one-time project cost for re-platforming.
A new operational cost model for the new ecommerce platform.
It’s time to start looking at technological alternatives in the market: we’ll need to know the costs of these two aspects of the platform change. And we’ll likely need assistance from an ecommerce agency to handle the technology analysis and subsequent re-platforming project.
We need to meticulously and diligently analyze this step 2 to compare it later with the internal data obtained in step 1.
Re-platforming project cost
To obtain the re-platforming project cost we can request quotes from several development agencies experienced in platform changes. By detailing our functional needs and everything developed on the current platform, we should receive sufficiently precise and detailed proposals from these agencies. They will outline the time and cost required for the platform change project. We’ll incorporate this data into our study.
Total operating cost of the new ecommerce platform
To estimate the total operating cost of the new ecommerce platform, we need to consider many aspects:
The first and most obvious are license costs and sales-related commissions of the new platform, especially if we’re moving towards SaaS ecommerce platforms like Shopify, BigCommerce, Shopware, Vtex, Wix (to name a few).
In this section, numbers need to be handled carefully because some costs of these solutions may not be immediately obvious. The cost factor will be crucial in selecting the SaaS technology we’ll use; some utilize percentage costs tied to sales, which can make the bill skyrocket, even becoming unaffordable. Let’s handle this part with great diligence.
Then we move on to operational costs. The shift to a SaaS philosophy simplifies many of these maintenance costs (hosting, security, updates, connectivity, etc.), but there are others we need to adapt.
From my experience, what’s hardest to see is the lower cost associated with operating the new platform. If the ecommerce platform technology for the new online store is well-chosen, especially if talking about new-generation platforms, many efforts should reduce: maintenance, updating, securing, managing, expanding, enriching, analyzing, and improving should be simpler tasks. And therefore cheaper. It’s crucial to add this to the new platform’s operational cost calculation.
What else can we look at to do this job? The Gartner consultancy has designed its own TCO (total cost of ownership) calculation methodology to serve as a checklist to overlook no cost consideration. And browsing TCO literature gives clues to many hidden costs that you might not be considering.
My advice here is to contact professionals to help with this calculation process. There’s no point in deceiving ourselves and seeking the cheapest cost right now without considering any of the mentioned points. Or being too optimistic (or pessimistic) in the analysis. Or overlooking any costs, especially those that grow with sales.
It’s vital to do this platform change cost analysis well if we want conclusions that are:
Valid (accurate and not misleading),
Valuable (teaching us something useful for decision making),
Versatile (that help us in justifying the change in front of others).
Armed with the “3 Vs” from the previous step, let’s work on step three of this methodology, which is the final one 😉
STEP 3: Feasibility Analysis
What we’ll do in this Step 3 is combine our previous analyses to see if the ecommerce platform change is viable — now.
We start from the defined business objectives. It’s crucial to know what we need to achieve with our ecommerce channel when we should achieve it, and what happens if we don’t. The urgency for results or strategic inclination to risk we’ve set will significantly alter our reading of the following calculations.
These are the key calculations:
Current situation: Current platform operating costs + Current opportunity cost (for continuing with the current platform)
New situation: Re-platforming cost + New operating cost + New opportunity cost (enabled by the platform change)
If the cost of the “New Situation” is lower than the “Current Situation”,
that means re-platforming should be undertaken 🚀
Illustrative example:
From Step 1 calculations, you see keeping your current online store operational costs 100 (any economic units). This could be an annual figure, for example. The analysis can be done for other periods too.
You also estimate an opportunity cost due to lost sales, for example, quantifying the gross margin lost due to this at 90 units per year. This figure can remain in the first table or be transferred to the second column as a negative value for clarity.
In the second column, following the described Step 2, you obtain the re-platforming project cost (100 units) and also estimate the new operating platform costs, which drop by 35% to 65 units per year.
Moreover, you conclude there will be no lost opportunity cost with the new platform because everything will work as it should, being on par with the market. No potential sales will be missed. So, you leave the negative opportunity cost of the current platform in this side of the table (-90 units) and add nothing new.
Comparing these example totals (100 vs. 75), you see that turning the project takes compensates soon, due to reduced annual operating costs and additional sales thanks to platform improvements. Even in the first year, the change could compensate. Each day of delay means losing money (and competitiveness).
You’ve read a highly simplified exercise of this re-platforming analysis methodology. Just stick with the concept. There are many things to consider and calculate correctly before reaching these figures.
There are very different scenarios you can reach; even some where re-platforming isn’t beneficial yet. This methodology is so interesting for genuinely answering the question of whether we need to change our “vintage” ecommerce platform.
In most scenarios, you’ll see that tackling re-platforming sooner is beneficial. These calculations provide arguments for advocating the change. Each year lacking a proper online store generates potential debt to your brand… which your competitors have left behind.
Just hit reply to this email and tell me your case or questions.
Or write me here. I'll give you advice 💪