In the dynamic field of eCommerce, understanding and effectively managing Total Cost of Ownership (TCO) is a cornerstone for companies aspiring to increase their profits and optimize their operations.
In a recent presentation by Màrius Rossel, CEO of LogiCommerce, at LogiCommerce Connect, this vital topic was addressed, providing a detailed guide on how to calculate total costs and increase profits in eCommerce.
Here are the most relevant points from the presentation:
Definition and Importance: TCO is a crucial indicator for evaluating the economic efficiency of an eCommerce platform.
Its relevance extends beyond the digital realm, applying to any IT system in an organization, such as ERPs and CRMs.
Calculating TCO: The formula to determine TCO is relatively simple: it is the total cost divided by the Gross Merchandising Value, multiplied by 100.
This calculation produces a percentage that facilitates comparison between platforms.
Motivations for Platform Changes: Reasons driving a company to change its eCommerce platform can be diverse, including hosting issues, technological obsolescence, and challenges in integrating with other business systems.
Impact on Business: These factors directly affect a company's ability to grow, expand into new markets, and maintain competitiveness.
Evaluating Opportunity Cost: This concept reflects the potential losses derived from choosing one platform over another. It is a critical factor when calculating TCO, as a wrong choice can result in significant losses, especially during critical times like Black Friday.
Unexpected Expenses: When calculating TCO, it is prudent to include a margin for unforeseen expenses, which generally represent an additional 5% to 10%.
Comprehensive Analysis: Selecting the right platform requires a detailed analysis of various factors, including the technology used, integrated functionalities, specific business requirements, and the support offered.
Fair and Effective Comparison: When evaluating different platforms, it is essential to compare equivalent elements to make an informed and effective decision.
Technology and Functionalities: The choice of platform should be based on its technological robustness, integration capabilities, and flexibility to adapt to the specific needs of the company.
Business Requirements and Expansion: It is essential that the platform can support the company's expansion and growth plans, including internationalization and adaptation to different payment and logistics systems.
Investment in Marketing: Well-managed TCO allows for the release of resources that can be reinvested in marketing and other key areas to attract more customers and generate higher revenues.
Data-Driven Strategic Decisions: A deep understanding of TCO enables companies to make more informed and strategic decisions, driving growth and profitability in the competitive eCommerce market.
Effective management of TCO in eCommerce not only involves understanding direct costs but also a comprehensive evaluation of how technological and platform decisions affect overall profitability.
With a well-founded strategy and careful TCO management, companies can successfully navigate the complex world of eCommerce, maximizing their profits and ensuring sustainable growth.