Choosing the right e-commerce platform based solely on the cost of the subscription is like buying a car by looking at its price tag. What really matters is the sum of money that you’ll have to pay over the next 3 years, accounting for transaction fees, extra apps, developer costs, and annual plans.
Use a 36 month Total Cost of Ownership (TCO) model
The most common mistake many newly established businesses make is comparing platforms based on subscription rates, e.g., “$39/month” vs. “$49/month.” In truth, this is not a cost estimate but just a guess.
Below is a set of factors that should be taken into account to create a proper TCO model of a modern DTC eCommerce platform:
Every dollar spent on your platform over 36 months.
Your monthly SaaS subscription. Every single transaction fee you incur using every single payment gateway. Every recurring expense on third-party apps. Each penny that goes to themes or developer services. Your domain name registration.
Estimate these costs through month 36 before making your purchasing decision. The reason why 36 months matter is because the costs can be heavily front-loaded (initial setup, migration from, say, WooCommerce or Magento) or compound (subscription rates, transaction fees). The plan that looks like a bargain in month one becomes the most expensive by month 18.
The transaction fee inflection point
This calculation might seem like an obvious task for most merchants, but surprisingly, it’s the most critical one. Shopify Basic has a 2.9% + 30¢ transaction fee, while the mid-tier plan has 2.6% + 30¢. This 0.3% is a marginal difference but hugely consequential. With $10,000 revenue per month, the difference in credit card processing between the basic and mid-tier plans makes up just $30 per month. The difference in plan costs amounts to $36/mo, so you’re not quite there yet. With $12,000 revenue a month, the difference more than pays for increased plan costs, and every dollar of income that follows goes straight into your pocket.
Perform this calculation with your estimated monthly sales figures. The inflection point will be different for every store, but it definitely exists. Learning how to get the best deal on Shopify before choosing a plan can help you avoid paying extra fees for months. Shopify stores that use external gateways often incur an additional transaction fee on top of processing. In some cases, moving to Shopify Payments and upgrading to a higher plan become no-brainers.
App costs are real and easy to predict
The perfect scenario is to launch a business with a free plan and a free theme. However, usually, once the store is launched, it needs some apps to function.
Email capture, product reviews, shipping rules, upselling triggers, subscription billing, etc. are just a few examples of functionality not included with your initial plan. According to Cartloop’s research, the average Shopify store uses 6 apps to run these basic functions, which adds $50-$150 per month on top of the subscription costs.
In this regard, a $39/month plan becomes closer to a $120-$190/month plan. Estimate these costs before you go live, not after! Perform a technical audit, estimate necessary app costs, and calculate your TCO.
Developer overhead and theme costs
Shopify Liquid is a relatively easy programming language to learn. If you don’t have a technical background or if you want to implement certain functionality that you can’t get with your current theme, then you’re hiring a developer. Treat this as a one-time cost, not as recurring expenses.
Premium themes cost $180-$360 as a one-time purchase, which is not a huge sum over a 3-year period but a surprise for people thinking that free themes can cover all their needs. For most product-oriented stores, a premium mobile-optimized theme can pay for itself in terms of increased conversions in just 90 days.
Annual billing versus monthly billing
It’s rather simple. You save 25% of the subscription costs with annual billing compared to monthly.
E.g., on a $79/month subscription, it equals $237 over the year.
If you have confidence in your plans and cash flow, this is probably one of the easiest and cheapest ways to decrease your platform expenses. The downside is that you’re locking yourself in, but as long as you did your TCO work properly and chose the right plan according to your level of usage, this commitment should not feel like a risk.
Point of sale and migration costs
These two costs are usually overlooked until the very last moment.
If you intend to sell your products through physical locations (markets, pop-up stores, or shop fronts), you have to consider the costs of point of sales (hardware) and POS software (in addition to the current subscription). While it’s not expensive, it’s still not free.
The migration costs are incurred when you migrate your product data, customer base, and historical orders from WooCommerce, Magento, or any other legacy platform without making things complicated. Usually, you have to use either a paid migration tool or a developer or developers to complete this task smoothly. Make sure that you estimate these costs prior to planning your launch.
Choosing the right Shopify plan for a new store is not about comparing features that each plan offers. It’s all about margin protection. Create the spreadsheet, find your transaction fee inflection point, estimate the cost of your app stack, and choose the right plan based on these calculations.
