In the ongoing task of optimizing total cost of ownership (TCO), reducing software licensing costs is important. While a lot of this hinges on what’s in your enterprise tech stack, the ecommerce platform you choose in the first place can greatly increase total licensing costs. Are you paying licensing fees for a platform that has the flexibility to grow with you? Or are those recurring payments going to a platform that’s hanging you out to dry on operational expenses, leaving you to spend heavily on new IT as your company grows?
The right choice will help you reach your scaling goals without bogging you down with unnecessary expenses. In this article, we’ll guide you through software licensing in the SaaS universe and show you how.
Understanding software licensing in the SaaS model
The software as a service (SaaS) model is a commonly used ecommerce option for online businesses. For all the benefits the SaaS model offers, such as handling software updates and features, the licensing costs can get tricky beyond the monthly fee.
Some platforms offer low licensing costs, which is appealing at first glance. However, the catch is they’re often missing native enterprise functionalities and operations, which you’ll have to go outside the SaaS platform to pay for. These external operations and plugins pile up fast. Plus, you’ll have to pay extra technical and human resourcing costs to cover them. All this can quickly turn into a TCO sinkhole.
Instead, look for a SaaS platform that will offer manageable licensing fees not just upfront, but in the big picture.
Recently, Shopify commissioned a leading independent consulting firm to study total cost of ownership across Shopify and other major commerce platforms in North America. The verdict? Shopify’s platform fees (which includes licensing fees) are, on average, 23% better than our competitors. Below is a breakdown of exactly how much higher our competitors’ platform fees are on average:
- Adobe: 42% higher
- Salesforce Commerce Cloud: 14%
- BigCommerce: 32% higher
- WooCommerce: 32% higher
But again, there’s more to commerce expenses than licensing fees. To get the best sense of your total costs, you'll want to consider operating and support costs as well. The study found Shopify’s to be, on average, 19% better than our competitors. Below is a breakdown of how much higher our competitors’ operational and support costs are on average:
- Adobe: 24% higher
- SalesForce Commerce Cloud: 6% higher
- BigCommerce: 21% higher
- WooCommerce: 41% higher
The study also found Shopify’s implementation and setup costs are, on average, 33% better than our competitors’. Below is a breakdown of how much higher our competitors’ implementation and setup costs are on average:
- Adobe: 42% higher
- SalesForce Commerce Cloud: 16% higher
- BigCommerce: 88% higher
- WooCommerce: 49% higher
All this goes to show that Shopify offers a holistic approach to reducing total costs over time. Shopify’s routine product investments help make this happen. We release hundreds of new product updates each year, allowing you to custom-develop your enterprise with new features, without hiring a costly outside service.
For example: Since migrating to Shopify, the Swedish watch company Daniel Wellingtonmanaged to slash licensing costs by 50%. Under their previous IT (a headless ecommerce platform from commercetools with Contentful as their CMS) new website features took months, or even years to launch. By using Shopify’s native features, Daniel Wellington successfully integrated new systems for payment, customer relations, data analysis, and more. This led to an annual savings of half a million euros.
Software license management tools
Those three aforementioned areas where Shopify's rates beat the competition—platform fees, operational and support costs, and implementation and setup costs—are the three core components of total cost of ownership (TCO). TCO is like an all-encompassing cost calculator. Leveraged properly, TCO can be a vital tool for optimizing business growth.
Shopify’s total cost of ownership is up to 36% better than its competitors, and, on average, 33% better. For a closer look at the tools Shopify offers, let’s examine how you can reduce TCO by optimizing licensing costs.
Businesses pour a lot of money into software licenses. Software asset management (SAM) tools allow businesses to analyze all the software within their tech stack—a useful method for optimizing licensing costs.
For instance, SAM tools can help IT leaders identify unused or infrequently used software licenses, which can likely be cut from the budget. SAM tools can help ensure all necessary licenses are present and up to date, helping you avoid software licensing violations. Data collected along the way can also help consolidate software licenses, so IT leaders can optimize spending while ensuring they remain license compliant and audit-ready.
Automated SAM tools prevent the dreaded pile-up of unused (and expensive) software licenses as a business grows over time.
Strategies for reducing licensing costs
Software license management is an important part of reducing licensing costs, but it’s only a piece of the puzzle. Next, we’ll take an even deeper dive into how you can build an enterprise that’s cost-effective, flexible, and ready to deploy its developers where they’re most needed.
- Conducting software audits is a useful tool for cost understanding and reduction. Whether done in-house or by consulting an outside auditor, a comprehensive analysis of your software can reveal how efficient, user-friendly, and secure your stack is. All of this plays into cost efficiency.
Red-flag outdated or redundant software for removal. Also, be wary of custom builds and integrations across your stack—software that requires particular development skill sets (like Salesforce Commerce Cloud) cuts into efficiency. You don’t want your team working on backlog and building features that should be native on a platform. With Shopify as your enterprise ecommerce solution, systems are designed to talk to each other and integrate with custom code and third-party platforms. This way, developers are freed up to focus on what’s proactive for business.
- License optimization is another way of mitigating costs. Just as you don’t want to get bogged down with third-party integrations, software licenses and subscriptions can pile up over time and waste money. An effective audit (along with the use of SAM technology) can reveal outdated licenses or licenses employees are no longer using. In turn, IT can turn this information into optimized spending. Paying for only the licensing you need (without cutting back so much you hinder security, expose yourself to licensing violations, etc.) is a massive win for your enterprise.
- Renegotiating with resellers and partners is another way to free up licensing budget and reduce total cost of ownership in general. As you work with vendors over time, look for potential areas of compromise where you could unload unnecessary licenses (and other expenses). Of course, consider their side of the arrangement, as well as the market at large. Together, you may find a way to consolidate necessary licenses at a rate that’s more advantageous for you.
Using Shopify, your ecommerce enterprise can operate from a position of flexibility right away. With the most innovative commerce technology at the ready, you’ll be prepared to cut unnecessary workflows, optimize TCO, and focus on your own innovation roadmap.
Regular internal audits
Regular, in-house audits of company software are useful for a number of reasons: you want to be constantly sure that your IT is up to date, up to code, secure, and workable for your average user. The outside point of view provided by third-party audits is necessary under some circumstances, but internal audits can help your team zero in on company details unique to your operation. Especially when it comes to licenses.
A regular examination of your IT environment can reveal outdated licenses before they waste your money. It can help IT leaders decide if your business is ready to scale. And it can reveal vulnerabilities in your stack that could use better security. This could bring you to spend more in the short term but ultimately save you money and solidify your business for years ahead.
And if you’re looking to renegotiate with resellers and partners, internal audits are a good place to start. By gathering as much data as possible on your current licensing situation, you’ll be more prepared to enter negotiations.
The impact of third-party license costs
When assessing total IT costs, it’s important to not lose sight of third-party license fees. These can become a surprisingly costly hassle if your business is unprepared. A glance through how to calculate total cost of ownership is a good reminder of how factors like this can nickel and dime you over time.
Shopify’s built-in integrations work to make third-party license costs as manageable as possible. Our systems are specially designed for compatibility, even when you have to bring outside IT into the mix. All this flexibility makes for lower IT costs—and a much more appealing TCO.
How businesses are improving operational efficiency with Shopify
Let’s get more specific about what Shopify can do for your business. Here’s a closer look at how some ecommerce leaders have used Shopify’s capabilities to cut costs, increase conversion rates, and more:
- Since launching in 2011, Dollar Shave Club has revolutionized the men’s grooming business. Once a product that had to be purchased from behind plexiglass displays, Dollar Shave Club made high-end razors a viable (and successful) product for a web-based subscription model. But as they grew throughout the 2010s, Dollar Shave Club was spending a costly 40% of their total tech resources on maintaining their old, self-made custom platform.
“While you’re scaling a business, it’s essential to focus on activities that truly differentiate the brand and delight customers,” says Kyle Iwamoto, vice president of ecommerce at Dollar Shave Club. Since transitioning to Shopify, Dollar Shave Club has decreased tech maintenance resources by 40% and capitalized on Shopify’s adaptability.
- The mattress retailer Lull is another example of how Shopify can help reduce costs. After switching from a home grown platform, then BigCommerce, to Shopify, Lull was able to significantly reduce infrastructure and tech expenses.
“Implementing Shopify inspired us to review our org structure, software stack, and operating expenses. 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.
SaaS solutions that support your vision
We understand that you have goals you'd like to see your enterprise reach—real expectations for two, three, even five years down the line.
Now think of your current SaaS platform. For your enterprise to reach those goals, you probably already have a good idea of the sales volume, customer experience, and scalability your SaaS platform will need to achieve. Is it prepared to support your goals?
A SaaS platform that’s flexible enough to integrate new systems with ease and lower your licensing costs is achievable. In fact, these principles go hand in hand. With license cost optimization under Shopify, you can channel wasted budget into more sales and happier customers right away.
Reducing licensing costs FAQ
What is software licensing?
Software licensing is the process by which a software supplier (such as a SaaS platform) grants users (such as an ecommerce enterprise) the rights to use its platform functionality. This is done in exchange for a software licensing fee (typically paid on a monthly
basis) in addition to other costs like implementation fees and variable fees.Why is software licensing important?
Software licensing is important because it is so fundamental to the success and profitability of an ecommerce enterprise. The licensing fees comprise a significant part of the enterprise’s budget and should be optimized to meet their needs. An effective licensing agreement can reduce licensing costs and streamline resources toward sales conversion, customer satisfaction, and more.
How can software licensing costs be reduced?
Software licensing costs can be reduced through regular software audits (done internally or externally), license optimization, renegotiating deals with software partners, and software asset management (SAM) tools, which allow businesses to analyze all the software within their tech stacks.
What is the role of software audits in reducing licensing costs?
An effective software audit will evaluate all of an enterprise’s active software licenses and alert IT leaders to licenses that may be outdated, redundant, or needlessly expensive. This data provides a window to how efficient, user-friendly, and secure your tech stack is.
What are the benefits of regular internal audits in software licensing management?
Internal audits are like a check-up for your company’s software ecosystem. Regular internal audits ensure your IT leaders are up-to-date on what’s going on beneath the hood, particularly as it pertains to the company’s unique operations. This way, you’re constantly aware of how up-to-date your licenses are, and how secure and workable your software is for your average user.
