Cost reduction. It’s a term that carries lots of negative associations: downsizing, scrapped plans, goals left unrealized. But it’s a term that deserves an open-minded approach, because the truth is, cost reduction does not have to be anti-growth. In fact, a savvy roadmap for cost reduction can not only increase revenue for your company, but unlock new opportunities.
Reducing costs is an ongoing process, not a standalone action. It’s important to have the whole team on the same page, with specific, attainable goals in mind. After all, missteps in cost reduction can be disastrous, especially for up-and-coming companies with limited resources that don’t have a lengthy track record to fall back on. We’ve all heard horror stories about storefront downtime, unhappy customers, and lost sales. Fortunately, there are pathways to cost reduction that also support growth.
Perhaps your business is already used to conducting audits for this very reason. Audits are useful, but there’s much more to consider when optimizing cost reduction. A lot of it has to do with what ecommerce platform you choose in the first place. In this post, we’ll guide you through a growth-friendly approach to cost reduction for your business.
Cost reduction in commerce
When ecommerce businesses set out to reduce costs, here are some common reasons why:
- They’ve detected redundant or outdated licenses.
- Features that aren’t offered natively on their current platform have become costly to develop and implement.
- Operational and support costs are too high or out of sync with their business needs.
- Their acquisition costs are too high and they’d like to seek more efficient ways to obtain new customers.
- They want to lower their total cost of ownership (TCO).
Of course, there are more reasons businesses seek to reduce costs, but these are among the key areas where we’ve noticed buyers can lower expenses while promoting growth. As we explore them in more detail, consider the variance in costs based on different types of ecommerce brands and their product offerings.
When evaluating ecommerce brands, keep these two variables in mind:
- The extent of the scalability they offer, compared to your current and future requirements
- The quality of post-sale support they offer, especially as it pertains to your ongoing implementation plans
The ecommerce brand that excels in these areas is likely to give you the most bang for your buck and help you scale—even years down the line—without expensive, work-halting headaches.
A fear of implementation struggles (and plain old complacency) often hold businesses back from making the switch to a more advantageous platform. Gartner® Peer Insights™ analyzed 188 Peer Insights reviews to identify lessons learned implementing digital commerce platforms. Gartner Peer Insights recently analyzed over 180 reviews from digital commerce leaders and concluded what what we believe and long championed—that making the leap to the ecommerce platform that’s best for your business is worth doing right away. One digital commerce leader from the retail sector attested:
“The most important element to analyze beyond the branding noise is the agility of the platform to scale to what is required now and in the future with promptness. Plus, a team supporting that both technically and one-on-one is a must.”
Shopify’s extensive app ecosystem is ideal for scalability. Our engineers stay on the pulse of the industry’s needs, releasing hundreds of new features with each Edition every six months. And with Shopify Plus Priority Support for 24/7 technical help, we’re ready to meet you where you are and guide your business well beyond the implementation process. Other ecommerce platforms on the market, such as Salesforce Commerce Cloud and Adobe Commerce (Magento), offer comparable scaling and support opportunities. As we go on, we’ll take a closer look at how they stack up with Shopify.
What does a successful cost reduction initiative look like?
Understanding cost reduction begins with understanding TCO. Think of it like an all-encompassing cost calculator for your business. Here are the three primary drivers of TCO and how they relate to a successful cost reduction strategy:
1. Platform fees and ecommerce stack costs
Platform fees are the ongoing costs you’re charged (usually monthly) to license usage of your platform’s services. Additional third-party applications may be needed to fill out your ecommerce stack, which drives up costs.
Some enterprises offer low licensing costs but don’t provide native enterprise functionalities and operations, which you’ll have to go outside the platform to pay for. Those fees can pile up quickly. Instead, to reduce licensing costs, look for the platform that will provide reasonable platform fees both up front and in the big picture, with robust native functionality provided in-platform.
According to ecommerce platform comparison research commissioned by Shopify from a leading independent consulting firm, Shopify users reported the lowest platform costs on average, compared to other major commerce platforms in North America. Here’s how it breaks down:
- WooCommerce: 32% higher costs on average, due to increased support needs and frequent version upgrades
- BigCommerce: 32% higher costs on average, due to limited native enterprise capabilities
- Adobe Commerce (Magento): 42% higher costs on average, due to less flexible pricing
- Salesforce Commerce Cloud: 14% higher costs on average, due to less flexible pricing
2. Operational and support costs
This second driver of TCO covers recurring expenses that enterprises incur to keep the platform live and functional. Operational and support costs include technical resources and human resources needed to maintain and enhance the platform.
Website maintenance costs are crucial here. Successful enterprise websites typically feature attractive design, high functionality, and extensive product catalogs—not to mention security measures to prevent costly breaches. The best platform option will help you save on maintenance costs from the start by including extensive native functionality to cover all of the above. For example, Shopify boasts the best-converting checkout and lower maintenance costs, saving and making you more money in the long run.
According to the same report mentioned previously, Shopify users reported the lowest operating costs on average, compared to:
- WooCommerce: 41% higher costs on average, due to additional infrastructure costs
- BigCommerce: 21% higher costs on average, due to limited native enterprise functionality
- Adobe Commerce (Magento): 24% higher costs on average, due to Adobe's complex legacy commerce platform
- Salesforce Commerce Cloud: 6% higher costs on average, due Salesforce’s complex legacy platform
3. Implementation costs
Implementation costs: These are the costs associated with rolling out a platform: setting up the system, integrating the platform to existing enterprise applications, and developing the front and back end of the ecommerce website.
According to the same report mentioned earlier, Shopify users reported the lowest implementation and setup costs on average, compared to:
- WooCommerce: 49% higher costs on average
- BigCommerce: 88% higher costs on average
- Adobe Commerce (Magento): 42% higher costs on average
- Salesforce Commerce Cloud: 16% higher costs on average
Not only are our customers enjoying the perks of an adaptable and secure ecommerce platform—they’re also getting the best TCO. Shopify’s TCO is up to 36% better than our competitors, and 33% better on average.
How Lull put Shopify’s cost reduction playbook into action
Home furnishing retailer Lull significantly reduced costs after migrating from BigCommerce to Shopify. “Implementing Shopify inspired us to review our org structure, software stack, and operating expenses,” says Mark Nagelmann, director of web operations at Lull. “This led to a 25% reduction in software costs and 10%–15% savings on internal tech expenses. Ditching the old inefficiencies, our opex model is leaner and meaner.”
Lull didn’t let complacency get in the way. If they’d stayed the course and never migrated to Shopify, they’d still be paying those higher fees—without the benefit of single-day product launches, and all the other new perks and scale-friendly features they’ve already leveraged.
Strategies for reducing licensing costs
In any cost reduction initiative, it’s important to lay out a coherent plan. Have clear, quantitative goals backed up by the methodology to reach them. Strive to get all departments on board and assure the team is aware of your goals and incentivized to reach them.
Begin by identifying areas where costs can be trimmed right away, often through automated processes. For instance, software asset management (SAM) tools allow businesses to analyze all the licenses within their tech stack and identify those which are unused or infrequently used. SAM tools can also ensure licenses are up to date, to avoid costly violations.
The most effective plans for licensing cost reduction look beyond budget-trimming. Let’s explore a more holistic approach.
Make TCO your North Star
“How do we make more with less?” is a common refrain for a reason.
As inflation concerns pervade the economy and tech debts rise, CTOs are faced with tough decisions in change management. Many tech companies are slashing vendor spending. And after waves of recent downsizing, many companies don’t possess the workforce to solve the problems in front of them. New initiatives are surely needed, but instead of letting outside trends control company strategy, the best CTOs are making TCO a North Star.
With TCO as a guiding principle, companies should invest in fewer, higher-impact tools and platforms, while empowering employees to be more proactive. Carefully research what tools and platforms possess the capability to guide you along your TCO plan. This streamlining will allow your developers to become more forward-thinking and central to the goals of the company.
Focus on revenue-generating activities
Consider what has made your company most successful. Then hone in on it. Push your development team away from maintenance and backlog and instead toward what generates the most revenue.
Remember, the goal is to optimize productivity rather than to simply cut spending. Partnering with a complementary ecommerce platform can free up developers tremendously and increase revenue in the long run.
For instance, energy brand Sunology migrated to Shopify during a period of rapid growth in late 2020. The capabilities of WordPress and WooCommerce had grown unsustainable for Sunology CEO and founder Vincent Arrouet: “Every time I needed to change a comma or anything, I had to create specifications, request a quote, wait for the developer to be available.” Shopify’s capabilities facilitated Sunology’s need for specific web templates right away. “In just five days of development, our customized platform was ready.”
Investing in Shopify’s services was also a cost reduction win for Sunology. “WordPress incurs significant costs in terms of development and project management, which would have eventually exceeded the price of Shopify’s package.”
Decrease risk through partnership
There’s no need to build your tech from the ground up. The best platform to work with is the one that offers the best tech partners. And the best tech partners earn their value with the application programming interfaces (APIs) they offer.
Ecommerce APIs are sets of definitions and protocols for building and integrating application software. That’s a fancy way of saying APIs save your developers a ton of work by implementing much-needed functionalities into your ecommerce site, so you don’t have to make them from scratch. For instance, you could use APIs to build your storefront or to integrate with a shipping provider, saving you the head-spinning undertaking of processing orders on your own.
Partnering with Shopify’s best-in-class software allows businesses to focus on their core area of expertise: the product.
We’ve handled 40,000 checkouts per minute with ease. Black Friday-level traffic could obliterate in-house software. Shopify’s capabilities provide the peace of mind that products will reach their customers during peak sales periods. And by utilizing our APIs, your developers can focus on building new features, rather than playing catch-up.
Cost reduction management tools
You’ve adopted a TCO-driven approach to cost reduction, and your business has begun to reap the rewards. Sales are up. Scalability has entered the conversation. But as a business expands, repetitive tasks build up. So do customer expectations. Systems that used to work could even start to buckle under the added pressure.
Ecommerce automation is the use of technology and software to streamline and automate key tasks and processes in online retail. As your business scales, ecommerce automation tools can empower your team by taking redundant, time-consuming tasks off their hands.
These tools can automate tasks as simple as printing shipping labels or as complex as offering discount codes for loyal customers at specific times.
Tasks that can be automated include:
- Inventory, orders, and fulfillment
- Scheduled tasks and product releases
- Customer loyalty outreach
- Rules-based pricing discounts
- Customer support
Using ecommerce automation tools is an effective way to enhance TCO. You’ll cut unnecessary expenses while freeing up your team to focus on more strategic ways to push the product forward—while eliminating the risk of human error.
Management tools can also reduce your acquisition costs. This is the amount of money spent to obtain a new customer, taking into account factors like marketing expenses, website development and design, and customer acquisition incentives.
Tools for reducing acquisition costs include:
- Targeted advertising, which allows businesses to target their ads to specific customers, based on criteria like demographics, interests, and behaviors. Targeting tools like Shopify Audiences can help you minimize wasteful ad spend and cut customer acquisition costs by up to 50%.
- Optimized conversion, which works to deliver on the demand created by targeted advertising. Conversion rate—the percentage of an audience that performs a specified action, often a sale—signals how much value you’re getting from your existing users. Optimizing your checkout page is crucial to your conversion rate. Start by selecting the right ecommerce platform.
The right ecommerce platform is the one with the right tools. The tools proven to expand businesses without expanding costs.
Shopify Checkout is the world’s best-converting checkout. We commissioned a Big Three management consultancy to compare Shopify to all other major commerce platforms. The verdict? Shopify converts up to 36% better than the competition and by an average of 15%.
How to cut costs—and fuel growth—with Shopify at your side
We help brands focus entirely on their primary differentiators—while using our scaled capabilities for the elements that will boost confidence in your tech stack and accelerate your team’s productivity.
Using TCO as a guide, Shopify can unleash your business’s full potential.
Gartner, Peer Lessons Learned for Digital Commerce Platforms Implementation, By Peer Contributors, 2 February 2024
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Gartner Peer Insights content consists of the opinions of individual end users based on their own experiences with the vendors listed on the platform, should not be construed as statements of fact, nor do they represent the views of Gartner or its affiliates. Gartner does not endorse any vendor, product or service depicted in this content nor makes any warranties, expressed or implied, with respect to this content, about its accuracy or completeness, including any warranties of merchantability or fitness for a particular.
Cost reduction FAQ
What is cost reduction?
Cost reduction refers to a variety of processes through which a business aims to reduce expenditures in order to increase profits.
What are the methods for cost reduction?
Methods for a cost reduction plan often begin with establishing realistic goals, backed up by staff buy-in. Next steps include focusing on revenue generating activities, eliminating less profitable initiatives, and decreasing risk through partnership.
What is an example of product cost reduction?
An example of product cost reduction could be optimizing your online checkout page in order to raise your conversion rate.
What are the benefits of cost reduction?
Benefits of cost reduction include less wasteful spending, more streamlined workflows, a more advantageous TCO, and the establishment of a more sustainable long-term business plan.
