It’s a suspicion.
An uncomfortable, nagging jolt that pops up from time to time … then “disappears” below the horizon of things more urgent. But in the back of your mind — beneath the other priorities — you know it’s lurking there. Waiting to rear its ugly head.
Crashed sites. Broken checkouts. Infrastructure costs in the six figures.
Sadly, that list doesn’t even touch off-site boogeymen like order fulfillment, supplier relations, sales and marketing, raising capital, and HR.
But here’s the thing: the less obvious costs that ecommerce creates — the draining redundancies, fixes, patches, and workarounds — aren’t disconnected from the glaring struggles of all commerce.
In an open letter to CIOs published on Forbes, Oracle’s Chief Communications Officer, Bob Evans, laid out the fundamental problem with what he called “legacy baggage.”
“75% or even 80% of your total IT budget is chewed up by the care and feeding of the old stuff that has little or nothing to do with insights, better customer engagement, and meaningful customer-centric innovation.”
In other words, the lion’s share of your expenses — monetary, yes, but time and attention too — are devoured by technical demands that do nothing but tread water.
Staying afloat is no small task. But making progress to dry land is imperative.
Ironically, even when these costs show up on a balance sheet, they don’t reveal what’s behind the scenes. By cannibalizing funds and energy, your ecommerce platform could be killing your company’s overall growth.
To knock out these all-too-common “costs of doing business,” let’s take a look at two of the most crippling.
How to Fix Stubborn Variable Costs (And One That’s Not So Easy)
Variable costs are the bane of operating at scale.
Some are unavoidable. Most only appear that way.
Take shipping, for instance. In a world “where 93% of consumers say they’re motivated to purchase by free shipping,” keeping up with Amazon can feel like a margin-destroying mission.
Intelligent fixes like setting up free shipping thresholds dramatically reduce your visitors check out fear while controlling for profitability. Likewise, dynamic pricing and even decoy pricing increase add-to-carts, purchases, and average order values.
On the platform side, however, things get trickier.
After talking to thousands of merchants, one theme comes up over and over — the variable costs of maintaining on-premise hosting, security, and upgrades.
Not only does this demand regular dev costs, but it compounds when one upgrade or “fix” breaks something else.
Planning and budgeting become impossible.
Worse, when you’re scaling, inefficiencies like this eat into every other area of businesses: marketing, 3PLs, managing inventory, product development, and order fulfillment.
To gauge whether your platform is holding you back, consider these questions:
- Is the majority of my staff or agency’s workload devoted to maintaining or innovating?
- Are on and off-site features that could boost performance being held back and delayed?
- Has my platform’s speed or functionality failed me?
- Do technical drags, red tape, or DIY patches slow my team’s execution from idea to implementation with either new products or new sales channels?
And, of course, don’t forget the mother of all variable cost questions:
Did my dev spend and timeline exceed expecations last year?
If so … it might be time for a change.
How to Rescue Opportunity Costs (While Getting Your Joy and Peace of Mind Back)
Being bogged down and “slow to market” means more than just struggling to iterate during product development and launch.
All the variable costs we just covered mean something else: when you can’t devote money and time to growing your business, it stagnates.
This is especially painful when it comes to the cost of capital. Whether you’ve raised funds through loans, VCs, or angel investors — even if you’ve bootstrapped — waiting 2-6 months for development means none of that capital is earning a return.
It's also crippling when it comes to bringing innovative strategies to life.
Rhone Apparel is a perfect example.
In the hyper-competitive fitness apparel market, what led to Rhone’s breakthrough — which included 500% growth in 2015 — was breaking out of the one channel mindset.
To overcome the customer disconnect from a digital-only approach, Rhone held pop-up events while simultaneously developing a wholesale channel that landed them in more than 120 brick and mortar stores like Bloomingdales and Nordstrom.
In the words of Nate Checketts, co-founder and CEO of Rhone:
“You don’t need an ecommerce or a retail strategy; you need a commerce strategy.”
Implementing their holistic strategy meant navigating a host of technology, integration, and development challenges. Checketts and his team sat through pitch after pitch from ecommerce platforms all aimed at persuading them that their approach required a highly customized solution.
“In all of those conversations, I said please explain why we need to spend $100,000 on a custom checkout cart the vendor has probably already built for another client versus one that’s already on the market and working well for thousands of other ecommerce companies like ours.”
“If I go down the custom route it could be a black hole and wind up costing hundreds of thousands of dollars more for development and integration.”
What Rhone wanted was a proven solution that didn’t require expensive customization. They just wanted it to work.
That desire led Rhone to Shopify Plus:
“To say we’re all in on Shopify Plus is an understatement. It allows us to focus on building a product rather than building an ecommerce site.”
Nate Checketts, Rhone Co-Founder & CEO
Something similar happened in the aftermath of Jones Soda replatforming from Magento to Shopify Plus.
Like many merchants, Jones Soda depends on contests for top-of-the-funnel promotions. “Creating them,” says Jones’ ecommerce manager Cassie Smith, “used to be like launching this huge beast of a ship: ideation, design, dev, deployment, and all these amorphous spreadsheets along the way. By the time we got to the contest, all the fun was gone. I’d be completely burned out.”
It’s a complaint you’d rarely hear at the executive level, one that simmers below the surface.
Thankfully, the answer came from an unexpected source:
“I fell in love with the Shopify app structure. Implementing doesn’t require a big commitment or custom build, so we can experiment a ton and launch almost immediately.”
CASSIE SMITH, JONES SODA ECOMMERCE MANAGER
“Our most recent contest with Microsoft grew our email list by 40% and took just a few hours to set up using Shopify, Jotform, and MailChimp. I feel a lot of its success rests on the freedom we have to play. That freedom didn’t exist before.”
Image via Jones Soda
Of course, this doesn’t mean you can’t develop or build custom integrations, but rather, you can spend time and budget building functionality that directly influences growth.
Rhone and Jones both represent the crux of opportunity costs:
Time spent on tech means time spent away from building your business.
Most deceptively, as Parkinson's Law states, "work expands so as to fill the time available for its completion." The more accustomed we get to slow implementation, the more we accept it as normal.
Given how many opportunities fall by the wayside … normal can be incredibly costly.
The ‘Costs’ That Shouldn’t Be
If Bob Evans is right, then unburdening “75% or even 80% of your total IT budget” is no small matter.
Variable costs associated with maintenance don’t just make budgeting impossible; they do nothing to grow your business. Likewise, the opportunity costs of devoting time and money to staying afloat crush creative initiatives and even drain them of joy.
And the truth is we haven’t even hit the real growth killer yet — the emotional toll all this puts on your people.
Next time, that’s exactly where we’ll look.
Until then …
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